#### STUDI E SAGGI

– 184 –

Francesco Ciampi

# Knowing Through Consulting in Action

Meta-consulting Knowledge Creation Pathways

FIRENZE UNIVERSITY PRESS 2017

Knowing Through Consulting in Action : meta-consulting Knowledge Creation Pathways / Francesco Ciampi. – Firenze : Firenze University Press, 2017. (Studi e saggi ; 184)

http://digital.casalini.it/9788864536439

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#### *Firenze University Press Editorial Board*

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# TABLE OF CONTENTS


#### INTRODUCTION

Management consulting firms are often discussed as being the archetypes of knowledge-intensive firms (e.g., Alvesson, 1995; Crucini, 2002; Heller, 2002; Werr, 2002), or as the firms whose core product is knowledge itself (Sarvary, 1999). However, despite the fact that the literature offers a wide selection of studies into enterprise knowledge management (Abrahamson, 1996) and management consulting (Whittle, 2006)1 , the subject of knowledge creation potential that can be activated through the concrete implementation of management consulting interventions still remains a largely unexplored research area.

Consulting firms are generally aware of the value of knowledge for their own organizations and for their clients2 . However, notwithstanding the official claims of some consulting firms3 , the empirical evidence (e.g., Linnarsson & Werr, 2002) shows that even today the (economic and, above all, cognitive) value-creation potential related to the transition from consulting

<sup>1</sup> Over the past ten years management consulting has been one of the most dynamic industries within the context of the advanced tertiary sector (in terms of revenues, new business start-ups, number of employees, range of services offered, etc.). The aggregate turnover in this industry reached about \$229 billion in 2017 (with an average annual increase of 3.6% in the 2012-2106 period) and in the next four years it is expected to see an annual growth rate of higher than 4 percent (IBIS World, 2016; Kennedy Information, 2017).

<sup>2</sup> The increasing awareness among consultancies of the knowledge creation potential of management consulting is confirmed, for example, by the progressive and empirically detectable change in the range of management consulting services offered and their modes of delivery: creating and sharing knowledge (in terms of exploration, development and exploitation) have now become key-channels for transferring value to clients (Davenport & Prusak, 2005). Moreover, many of the top consultancies now «offer knowledge management services for their clients, focusing on how they can develop their internal knowledge management practices» (Buono & Poulfelt, 2005, p. IX).

<sup>3</sup> In the communications to the market made by the big consultancies that offer «high knowledge creation potential» consulting services, we may often notice such claims as «Our clients outperform the market 3 to 1» (Bain), or «We are successful if our clients have built in-house capabilities to solve their own problems the next time around» (McKinsey). See Poulfelt, Greiner and Bhambri (2005, p. 14).

approaches geared to the transfer of 'best practices' (consultant as expert) to consulting approaches geared to the cooperative creation of new knowledge and managerial capabilities (consultant as a facilitator of new managerial knowledge and capabilities creation processes) is rarely consciously perceived and, consequently, is not adequately planned for and exploited.

This book interprets management consulting from a knowledge perspective, and proposes a general conceptual framework for investigating and interpreting that potential.

After presenting some reflections about the current and forward-looking relationships between academic research and management consulting (Chapter I), I propose a definition of management consulting (Chapter II) which aims to identify the distinctive ontological (real, essential and relatively stable) features of this particular service and emphasizes the mainly cognitive nature of its value-creation potential.

I go on to present a review of the literature regarding the relationships between knowledge creation and management consulting (Chapter III), and discuss two approaches to interpreting management consulting: the consulting process approach (Chapter IV), and the consulting models' approach (Chapter V). I use these approaches to outline the essential variables of the consulting relational dynamics.

In the Chapter VI, I make use of the theories interpreting knowledge creation processes as knowledge conversion processes (Nonaka & Takeuchi, 1995), and apply them to the specific context of management consulting relationships. This allows me to propose a possible framework of the cognitive pathways along which knowledge can be created through management consulting. It highlights the fact that in 'meta-' (i.e., advanced) consultancy contexts the knowledge creation potential of consulting lies in the possibility that it can generate not only explicit knowledge but also (even, mainly) new tacit managerial knowledge, such as new interpretative abilities (vision of the firm's structure and of the competitive environment), new experience-based diagnostic skills, and new capabilities to gain insights into solving managerial problems. The value of this knowledge for both the client and consultant goes far beyond the solution of the specific problem for which the consultant was engaged. The aim is not to demonstrate the absolute validity of this model, but more simply to highlight its internal theoretical consistency and to discuss the supporting evidence of a number of anecdotal cases4 , which are used to better clarify the conceptual framework, rather than serving as empirical evidence for the validity

<sup>4</sup> The brief empirical evidences provided in this book are based on interviews by a group of researchers who have explored (under my guidance) the emerging issues in knowledge management within the context of the European management consulting industry. This research project has been conducted with two samples of firms; one comprising fifty management consultancies of various sizes, and the other with over one hundred large and medium–sized corporations.

of the model5 . Perhaps a better understanding of the knowledge creation paths that can be activated by management consulting projects following the meta-consulting approach will allow both clients and consulting firms to increase their awareness of the entrepreneurial knowledge generation potential engrained in the dynamics of the consulting relationship. Clients and consultants might be better placed to consciously define knowledge creation goals for their consulting projects, to effectively design and manage the related cooperative learning dynamics, and to evaluate the cognitive value (rather than only the economic value) of the consulting intervention results. Client firms might come to regard the management consultant's work not simply as 'seeking a solution to a specific problem' but also as 'facilitating the endogenous development of their cognitive capacities' (and hence of their distinctive capabilities). They could then select the consultant and, above all, plan their active cooperation in the consulting process on this basis. Similarly, consultants may be encouraged to interpret the consulting relationship as an opportunity for cooperative learning. This may not only increase the client's cognitive resources, but also enable consulting firms to develop new and unique knowledge (which only the specific consulting context can induce), and, consequently, new distinctive consulting capabilities that may be fundamental for their competitive success. The proposed conceptual model may have two major limitations. First, it may be subject to the limitations that some authors (e.g., Gourlay & Nurse, 2005) attribute to Nonaka and Takeuchi's theory of organizational knowledge6 . The second, and more important, limitation is that the individual knowledge creation pathways and the whole conceptual framework from which they stem still need to be more thoroughly investigated, so as to test their interpretation potential in diverse consulting settings (in terms of the consulting firm's size, structure and sector/specializations, and in terms of the client firm's size, structure and industry, for example).

Finally, after discussing two alternative knowledge management approaches typically adopted by management consulting firms (Chapter VII), in the last Chapter I outline the main dynamics of change that characterize today's demand for management consulting, and suggest that client firms are becoming increasingly aware of the real cognitive (rather than only the economic) value generation potential that can be activated through the consulting relationship. I also look at the possible pathways for evolutionary transformation of consulting practices, models and roles that consulting firms could follow if they want take advantage of the important changes that are taking place.

<sup>5</sup> This approach is frequent in management literature. See, for example, Normann (2001).

<sup>6</sup> To my mind, however, Nonaka and Takeuchi's organizational knowledge creation theory does still remain a very powerful tool for interpreting knowledge creation managerial processes.

#### CHAPTER I

## BRIDGING THE GAP BETWEEN SCIENTIFIC RESEARCH AND MANAGEMENT CONSULTING

Management consultancies like McKinsey and BCG are nearly always at the top of the first job wish list of young US and European MBA graduates. Over a third become management consultants (Cox, 1997).

In the course of the last thirty years, the relationship between management consulting and management education1 has become more complex, and the dividing line between the two has become less stable and increasingly difficult to define. The business world is in a state of continuous change; and education systems cannot always keep up.

One major development is the higher level of complementarity between academic education and consulting. The big consultancies are increasingly taking on the role of 'postgraduate business schools'. Many MBA graduates from the most prestigious business schools, such as Harvard and the Insead, start their careers in a leading consultancy firm (e.g. McKinsey, Booz Allen, Ernst & Young, BCG) before going on to take up high level positions in one of the large multinationals such as American Express, Westinghouse, or Lufthansa. That's how Henry Mintzberg, at the end of the last century, described the best strategy for a young graduate who aimed to become part of the top management of a large corporation: «After the MBA, you work as a consultant with some prestigious firm for

<sup>1</sup> The first academic institutes of research and education in management sciences were opened in the second half of the nineteenth century. The Warthon School of Philadelphia was founded in 1881, the Business School of Tokyo in 1887, that in Osaka in 1901, and the first German Handelshochschulen (Aachen and Leipzig) were set up in 1898. The important position held by today's management academic institutes within research and higher education around the world, however, is a result of the rapid expansion undertaken in the second part of the 20th century. The US business school (Harvard, Columbia, Stanford, Wharton, MIT, Chicago, Northwestern, etc.), with its three main articulations (pre-experienced education, post-experienced education, and tailored education), has been the reference model for many of the most prestigious European higher education institutes of management. For the UK institutes (the London Business School, Imperial College, and the Manchester Business School), for the Dutch ones (the Rotterdam School of Management, and Njemrode University) and, though to a lesser extent, for the German institutes (the German International School of Management and Administration, in Hanover) and those in France (e.g. the Insead in Fontainebleau).

a time, skipping from one client organization to another. And then you leap straight into the chief executive chair of some company, making judicious moves to others in the hope that you may one day end up running a company like IBM» (Engwall, 1998).

There is to some extent also greater integration between the two worlds. In the US, and also in Europe and in Japan, the main business schools have started to run executive development programs, i.e. tailor-made training programs for middle and top managers, which are designed to meet the specific requirements of the firms that have commissioned the courses. At the same time, the main consultancy firms are taking an increasingly active part within academic institutions. They provide funds for special training projects, for master's degrees and for complete undergraduate degree courses. McKinsey has long been a key sponsor of Harvard Business School, and the British Management Consultancies Association has given financial backing for the London Business School. And the representatives of the big consultancies are on the boards of many business schools.

Another major development is the higher level of competition. The big consultancies are, in fact, increasingly setting up and developing their own training centers, or even 'corporate universities', which aim to provide new employees (and client firm executives) with the type of specialist, mainly process-related, knowledge (for example the knowledge concerned with handling change management processes, which is an essential part of management consultants' work) that is rarely included in university curricula, even in universities outside Europe. Though consulting firms will no doubt continue to recruit the new graduates of the most renowned business schools, there is a growing risk that even these schools may stop being real educators and may end up acting as mere selectors, while the people selected will be trained elsewhere.

At the same time, there is no clear sign of spontaneous change in the attitudes of academic research toward management consulting.

Those engaged in developing business theory have always been aware of the essential, and vital, effects that practice has on theory.

Management teachers should not shut themselves off from the real world. Indeed, they should take an active part in it so as to enrich their ideas and obtain a sound background that goes well beyond information from books or superficial, sometimes even futile, so-called 'research projects'…. They should remember what Galileo said: «You don't learn to play the organ from people who build organs but from those who know how to play them» (Fazzi, 1982).

In 1977, as a result of the discussions that took place the previous year during a conference concerned with management consulting, the Academy of Management approved the following Position Statement on Professor-Consultants: «The Academy of Management is supportive of professional consulting activities by its members when these activities are conducive to the professional growth of the individual and contribute to the management discipline through the enrichment of teaching, research, and understanding of the field» (Gore & Wright, 1979).

Yet in the academic world, both in the US and to a greater extent in Europe, there continues to be the idea that research and consulting are essentially two distinct and separate worlds. Research is seen as having the role of creating new knowledge, while the role of consulting is to apply existing knowledge to concrete corporate contexts (Savall, 2001).

We may need to ask ourselves if such a dichotomy has much value in today's world. The results obtained in research work, and their validity, depend on researchers being really able to observe, analyze and penetrate the object studied as it really is. Physics or chemistry researchers do experiments in their laboratories; but management researchers must find laboratories outside the university, since firms cannot be reproduced within the walls of academic institutes. Nowadays, firms are characterized by a high (and increasing) degree of complexity. External observation consequently becomes an increasingly inappropriate method if one is to adequately grasp the increasingly wide and articulated, heterogeneous and changeable dynamics involved in the corporate evolution, be they structural, relational, competitive or technological, etc. One recent research shows that firms consider consultancies, competitors, suppliers and clients far more useful as sources for new management ideas than the literature and the academic world (Table 1).


Table 1 – Views on the Role Played by Different Sources in the Diffusion of New Ideas*.* Interviews by the author in 2015 with 15 Italian medium and large firms.

The scientific approach to management needs to change radically and move its observation point towards the inside of the object studied. The discovery, analysis, and validation of the existence, intensity and direction of the (cause-effect, circular, etc.) relationships between the many significant variables involved would be made much easier if it were possible to use experimental research tools. For instance, by excluding a hypothetical cause and testing to see if a particular effect did (or did not) persist, it would be possible to exclude (or confirm) that the main cause had been identified. The firm is not a laboratory, however, and such experiments are hardly ever feasible. Paradoxically, students are given training placements in firms (whatever the limitations of such internships may be) but placements for researchers are practically non-existent.

Bringing the two worlds of research and consulting closer together has consequently become highly desirable. Management consultants need to know the theoretical bases of management disciplines, and their evolution outside the constraints of day-to-day business. And it is equally important for researchers to be able to adopt an «intervention view»2 through research projects that include periods of real consultancy work. This allows them to experience, face and attempt to solve real management problems, to question the dominant theoretical assumptions, to develop new ideas, to produce (together with the client firms) new knowledge (which is specific to the consulting setting), and to externalize this knowledge (by changing it into explicit new scientific concepts), thereby helping to renew the knowledge held in management disciplines.

The hope is that this book will be a small step in this direction.

<sup>2</sup> The «intervener-researcher» approach has had excellent results in France, for example, at the Institut de Socio-Economie des Entreprises et des Organisations (Savall, 2001).

# CHAPTER II

# MANAGEMENT CONSULTING: A CONCEPTUAL DEFINITION

Numerous definitions of management consulting have been proposed in the literature (e.g., Barcus & Wilkinson, 1995; EIU, 1993; Greiner & Metzger, 1983; Kass, Weidner, 2002; Kubr, 2002; Salvemini, 1987; Steele, 1975)1 .

The conceptual delimitation of management consulting proposed here is an attempt to identify the distinctive ontological (real, essential and

<sup>1</sup> The literature has a wide range of possible definitions for management consulting, which have been proposed by scholars and management consultants. The following are examples and not intended to be a comprehensive list:

Kubr (2002, p. XXI) defines management consulting as a professional service that helps managers to analyze and solve practical problems, and transfers successful management practices from one enterprise to another;


The diverse definitions can be grouped as follows, depending on the interpretative approach adopted (Kubr, 2002):


relatively stable) features that qualify the inner nature of this particular and fascinating service activity (Ciampi, 2008a, 2008b).

I defi ne management consulting as a «service activity performed by persons that are external to, and independent from, the client and that possess appropriate scientifi c-professional skills and abilities, and consisting of providing opinions in order to enable the client to identify and solve managerial problems that involve top management functions, using a rectifying, progressive and/or creative approach, and thereby contributing to the creation of new managerial knowledge*»* (see Fig. 1).

**Figure 1**: Distinctive ontological (real, essential and relatively stable) features of management consulting: a synthetic conceptual framework. Figure 1 – Distinctive ontological (real, essential and relatively stable) features of management consulting: a synthetic conceptual framework.

1. *Th e independence of the consultant*. Consultants must be able to express their assessments and opinions objectively and impartially (e.g., Kubr, 2002) without being infl uenced by other purposes than those inherent in solving the managerial problem for which the assignment was given2 , whether these 'other purposes' coincide or confl ict with those of the client fi rm's teleological structure3 , or are complementary to it. From this, it fol-

2 One of the consultant's main responsibilities is to assist client fi rms in defi ning the managerial problem from their viewpoint and in such a way as to protect their interests (Schaff er, 1997a; 1997b; Turner, 1982). Th e consultant must withstand any opportunistic temptations (Ormerod, 1997) to pursue other purposes (Saxton, 1995), such as inducing the client to purchase what the consulting fi rm wants to sell, rather than what the client really needs (Madigan & O'Shea, 1997).

3 Th e fi rm's basic teleological system, elaborated systemically by Carlo Vallini (1991), consists of the following main categories of purposes:


lows that consultants must be independent in financial terms (they must have no direct or indirect financial interests regarding the client firm), in decision-making terms (there must be no client-consultant relationship of super- or sub-ordination), and in emotional terms (there must be no psychological influences that might impair the consultant's necessary 'emotional detachment'). The consultant's independence in all these quarters will enable him/her to adopt cognitive and behavioral approaches consistent with the fiduciary remit given by the client4 .

2. *The scientific-professional skills required of the consultant*. Management consultants must be able to guarantee an effective and independent approach by virtue of their possession of (and capacity to use) appropriate scientific-professional skills and abilities (e.g., Frankenhuis, 1977; Kellogg, 1984; Madigan & O'Shea, 1997; Tierno & Young, 1986), acquired through specific training5 and/or previous managerial and/or consulting experiences,


<sup>4</sup> Following the financial scandals (Enron in the US, Parmalat in Italy, etc.), involving numerous national and international consulting firms, both the academic world and the consulting firms have focused major attention on the issue of the management consultant's independence and ethical behavior (see Hagenmeyer, 2007). This has reopened a wide debate on the motivations that move (or should move) companies to employ management consulting firms (e.g., Buono, 2002; Cambell, 2002; Czerniawska, 2002a).

On the ethical issues involved in intervening in client organizations, see (for example) Ozley, Armenakis (2000). Maula and Poulfelt (2002) present an interesting critical analysis of the Codes of Conduct and the Ethical Codes compiled by international management consulting associations. They highlight the fact that «the majority of the Codes tend to support one-directional, i.e. "directive", "contentbased", and "transplantation-based" types of consulting. In the cases where the Codes recommend interaction, they could emphasize two-directionality and mutual interaction between the consultant and the client more clearly and explicitly, in the spirit of 'non-directive', "process-based" and "translation-based" consulting models» (Maula & Poulfelt, 2002: 1).

<sup>5</sup> On the setting up of 'corporate universities' by management consulting firms (i.e., a department specifically for the training of their human resources), and on the features such 'internal' centers should have, see Nevins (1998).

and recognized by the other members of the professional community6 . This feature is emphasized by the definitional approach which interprets *management consulting as a profession*<sup>7</sup> , therefore identifying its essence precisely in the particular professional skills and expertise8 owned by the consultant9 .

This aspect of the consulting activity is obviously important in every phase of the consulting process, even though it sometimes appears not to be adequately taken into account by consultancy firms. The following comments were made by the chief executive officer of Studio Ruschini S.p.a. (an Italian garment design company whose clients include numerous leading international companies in the fashion industry, such as Gucci, Fendi, Valentino and Tod's) regarding the conduct of a consultancy firm he had commissioned to design and implement a new Enterprise Resource Planning (ERP) system.

A partner and two senior managers of the consultancy firm attended the first two meetings. These meetings were so productive we had already defined the project goals and the timing even before formally entering into the consulting contract. But after engaging that firm we only met junior managers and trainees and all these people, even though technically skilled, never gave us the impression they were up to the task. The project was a failure, and we were forced to go back to our old ERP system. I am certain that if the project had been followed

<sup>6</sup> This does not mean that management consulting is a profession in the formal sense of the word. A comment made by Dean (1938: 455), that «Profession is used in literature in discussing management consultants for lack of a more accurately descriptive term» is in some ways still valid today. In the course of the last decade, both the literature and the «real consulting world» have become increasingly attracted by the idea of setting up official professional bodies and/or registers to certify (and therefore render formally recognizable) the professional requirements for management consultants. Whether or not it is opportune for consulting firms to achieve full professional status (in view of the role these firms played in the collapse and crises of a number of big American firms), is discussed by McKenna (2006). Groß, Kieser (2006: 1) believe that «professionalization efforts among consultants […] will never be successful if the classical concept of professionalism is applied». On the topic of consulting professionalism see the recent study of Butler and Collins (2016).

<sup>7</sup> This approach emphasizes the professional qualities that management consultants should have (specific capabilities, qualifications and knowledge) and those to be required of the service (complexity, discretion, etc.).

<sup>8</sup> In this connection, *professional discretion* is paramount, since it guarantees that client information will not be used outside the consulting relationship. So is the specific competence required in terms of skills and knowledge for client problemsolving (*present professional qualities*), and the ability to keep on developing competence by studying theories and by learning new business and consulting practices (*potential professional qualities*). Consultancy should act as a connection between business theory and practice, between the academic world and the practical world of the firm (Kubr, 2002).

<sup>9</sup> Greiner and Metzger's 1983 definition belongs to this approach. It is cited in note 1.

up by the two senior managers we had met the first time, things would have worked out differently.

3. *The consultative nature of the client-consultant relationship*. Management consulting consists of providing opinions, not advice, for advice would be a deviation from the requirements of objectivity and independence (including emotional independence) which should always characterize the consultant's work. Management consulting sets into motion a process of collaborative information and knowledge exchange between the consultant, whose responsibility concerns the quality and objectivity of the opinions provided, and the client, who is ultimately responsible for applying or rejecting the opinions received. The following comments were made by the chairman of a major Italian bank regarding the work of a consulting firm engaged for the development of a new internal credit rating system.

The consulting firm demonstrated that the new rating model worked better than the one we had previously used (as it enabled us to evaluate our customers' credit rating much better), and this model is now effectively underpinning our credit policies. However, none of us was involved in all the phases of designing the model, and as a result, none of us is fully aware of the mathematical and statistical rationale underlying the way it operates and the complex weighting criteria used for the several variables it utilizes: the model is simply like a "black box" as far as we are concerned. How will we be able to improve that model in the future? And above all, how can we change it if it eventually turns out not to be reliable in the future (in a changed economic situation, with a different qualitative composition of our client base, etc.)?

The consultative nature of the relationship is emphasized by the definitional approaches which interpret *consulting as a method*, therefore finding its essence in its consultative function to the client when making decisions and/or performing certain tasks (e.g., Cohen, 1989; Steele, 1975).

4. *The 'problem-oriented' nature of the relationship*. Management consulting consists of identifying and defining problems (diagnosis), working out solutions (therapy), and subsequently applying those solutions (cure)10.

<sup>10</sup> Excluding the solution implementation stage from the consulting process, on the grounds that the consultant's role is advisory and it is the client who must implement the solution (Fleming, 1989), does not, to my mind, take into full consideration the question of the consultant's responsibilities. It is true that clients are responsible for deciding whether or not to adopt proposed solutions, and also for deciding how implementation should be carried out, just as they are responsible for choosing which consultant to hire. However, it is equally true that consultants cannot refuse some reasonable responsibility for the effectiveness of their opinions, by simply saying «it is not their job» to implement the solution, since it is this stage that puts those opinions into practice and «to the test against the reality of hard facts».

The problem-oriented nature of management consulting11 makes it all the more necessary to establish an appropriate level of cooperation between the consultant and the client12 in each phase of the consulting process. Here is what I was told by the managing director of the Italian division of a pharmaceutical multinational.

We are accustomed to dealing with (and seeking to solve) problems all the time (often many problems at one and the same time). We often have to make rapid decisions regarding prioritizing the different problems. We can decide to set aside some of them in order to solve the most urgent ones, but we cannot evade problems or pretend not to see them. I can immediately recognize people who are endowed with problem-solving skills and attitudes, and when I have to choose a consultant (whatever the task might be) these are the skills and attitudes I look for.

To be effective as problem solvers, consultants need a wide range of skills, such as analytical skills, synthetic skills, and creative skills, and, if the intervention model adopted is of the meta-consultancy type13, maieutic and empathetic skills are also required. For each skill, there is a minimum threshold value below which it is unlikely that the consulting intervention will be successful14.

5. *The contractual and fiduciary nature of the management consulting relationship*. The remit is given by the client firm and accepted by the consultant in the form of a contract, which may be succinct or detailed, and will not necessarily always be written down, through which both parties agree to confer full legal and psychological legitimacy to the consultancy activity. Among the underlying elements of the consultancy relationship, originating with the negotiations carried out in the initial phase of the consulting process, are the formal and clear definition of the consulting intervention goals (Armenakis & Burdg, 1988; Ford, 1985; Kellogg, 1984; Kolb & Frohman, 1970; Shenson, 1990b; Turner, 1982), the rights, duties and roles of each party involved (legal contract), and their conscious com-

<sup>11</sup> Since management consultants act as problem solvers, their main function is often defined in the literature as «reducing the uncertainty» with which the client firm's senior managers have to cope (e.g., Ernst & Kieser, 2002; Lundberg, 2002).

<sup>12</sup> Regarding the need for client and consultant to take equally active (and equally important) shares in the consulting process, and to set up an informal process of 'give and take' between equals, see Lippitt, Lippitt (1986). On the need for there to be close collaboration between client and consultant if the organizational changes are to be realized effectively, see (for example) Fischer and Rabaut (1992), Gelinas and James (1998) and Katcher (1972).

<sup>13</sup> See Chapter V. 14 See Chapter IV and V. For more general considerations on the strategic capabilities that are critical for the success of management consulting firms, see Kumar, Simon, & Kimberley (2000).

mitment to cooperate in a climate of mutual trust (Czerniawska, 2006a; 2007; Galford & Green, Maister, 2000a; 2000b; Green, 2006)15 and respect (psychological agreement).

The most difficult thing during the initial phases of contact with a new potential client is understanding whether I can trust him (whether he is sincere, whether he is really interested in the expertise I can offer, etc.) and above all, convincing him that he can trust me. Experience has taught me that being totally transparent can create a sense of insecurity in the other party (I have 'lost' many potential clients for this very reason), but in the long term it certainly pays off: in the remits I have been given in the past 10 years I have always received the maximum cooperation from my clients, and only in one case have I been criticized for not fully attaining the consultancy project goals (and in our profession attaining 100% of the objectives within the given timescale is the exception, rather than the rule).

These are the words of a founding partner of an Italian medium-sized strategic consulting firm.

6. *The managerial nature of the problems addressed.* Management consultants address managerial problems (strategic, organizational and/or related to one or more specific functional areas) whose solution can significantly affect the structure of the client firm16 (whether small or lar-

<sup>15</sup> In addition to there being a relationship of mutual respect and trust between the client firm and the consulting firm, it is of course equally necessary that there be a good working atmosphere among the members of the consulting team who will carry out the intervention. On this subject, see (for example) Maister, McKenna (2002a). For a wider discussion of human resources management in management consulting firms, see Maister and McKenna (2002b).

<sup>16</sup> When I refer to *the firm's structure*, I have in mind a simplified representation that aims to give a global picture of the firm's system, by identifying the *essential* and *relatively stable* morphological features of the ownership structure, the management structure and the operating system. This representation can be obtained by inductively identifying the features in the firm which are:


If we look closely, the firm's structure is the link between a descriptive analysis of the firm and an interpretative analysis of its change processes. It is both the result of the top management's decisions and the object upon which the management acts. The qualitative and quantitative features that make up the firm's structure can only be specified through a 'subjective' simplification process undertaken by the members of the top management and influenced by these members' personalities, and by the structural features of the firm's competitive environment. See Fazzi (1982; 1984) and Ciampi (2004) in this connection.

ge, manufacturing or services, etc.), generate changes in its state17, set in motion development, stabilization or turnaround strategic processes18 (Ciampi, 2004; Fazzi 1982, 1984), and ultimately have innovative effects19, supported by evolutionary changes in knowledge (rationalizing change rationales), attitudes (acceptance and internalization of motivations for change), individual and group behavior (concrete actions to bring about change); in one word: changes in corporate culture20 (Kubr, 2002). Over the last two decades, the scope of the managerial problems addressed by management consultants has gradually expanded to cover the whole gamut of a firm's management activities21. Some authors maintain that iden-

<sup>17</sup> Regarding the definition of the 'substance of managerial problems' as being 'gaps' between the actual, present state of the firm's structure, or its realistically foreseeable state, and the ideal (sought-for) state of this structure, see Section 2 in Chapter IV.

<sup>18</sup> In terms of top management decision-taking, the strategic process can be described as an induced change in the firm's structure (decided by the top management), which can be quantitative and/or qualitative and is designed to increase the strategic strength of the firm. The *development strategic process* is a radical, positive change in the firm's structure and is designed to reach new levels of strategic strength. In the *stabilization strategic process*, the aim is to maintain and defend already achieved levels (stabilizing its structure allows the firm to consolidate advances made during periods of development). In the *turnaround strategic process*, the aim is to return to prior levels which have been lost during a period of crisis. In physiological conditions, the firm's life can be seen as a succession of development and stabilization processes. For further detail, see Fazzi (1982; 1984) and Ciampi (2004).

<sup>19</sup> On the importance of the innovating function of management consulting, Greiner and Metzger (1983).

<sup>20</sup> It is vital that the consultant be able to take steps to remove/reduce the 'resistance to change'. The degree of resistance may vary; but there is nearly always some form of resistance, especially in the solution implementation stage. For further considerations, see Sections 2 and 4, in Chapter IV, and also Chapter VI.

<sup>21</sup> A framework of the typical management consulting intervention areas could prove useful toward building a full picture of management consulting activities.

Consultants can make use of a wide range of methods, tools and techniques, in order to solve management problems concerning the following management decision areas:


tifying the management consultant's 'specialized areas of expertise'22 lies at the heart of defining the management consulting concept: a list can be compiled of certain specialized fields of expertise, and it is assumed that


Each consulting intervention assignment is normally given to solve problems that are mainly located in one management decision area. However, given the systemic nature of managerial decisions, and problems, the intervention will almost certainly need to deal with aspects belonging to one or more of the other areas.

<sup>22</sup> There are many classifications of the management consultant's intervention areas. Table I shows that proposed by the European Federation of Management Consulting Association.


Table 1 – The management consultant's intervention areas (FEACO, 2015).

Czerniawska, May (2006) and Greiner and Poulfelt (2005) give interesting overviews of emerging trends in the main management consulting sectors.

whoever supplies services in those specific fields may be defined as a management consultant. I do not share this view since, not only does it fail to bring out the essential features of management consulting, but it also generates obsolete definitions because of the changes to which the consulting intervention spheres are constantly subjected (Aiello, 1996; Clark & Fincham, 2002).

7. *The managerial problem that is the object of the consulting intervention ('the consulting problem') concerns the client firm's top management.*  The problems to be faced by the management consultant (directly or indirectly) concern the functions of the client firm's senior managers which are 'not delegable' (Ciampi, 2004; Fazzi, 1982) and, consequently, the consulting problem must (directly or indirectly) regard at least one person belonging to the client firm's top management (which therefore represents 'the primary client'23 of the consultant).

I immediately decided to take up the KPMG offer, even though the starting salary they proposed was 20% lower than what I was paid by Alfa24 Consulting [a company offering Information and Communication Technologies services to manufacturing firms]. Even though I had become a senior manager, our consultancy projects almost invariably dealt with the technical aspects of the client's technological infrastructure and my interlocutor was always an EDP employee and/or an employee of an external company, to which our client had outsourced the maintenance of its technological facilities. I was not working for an ICT management consulting firm, but for a company offering IT infrastructure maintenance services.

This statement was made by one of the candidates that KPMG Italia recruited in 2006, after a lengthy selection process.

8. *The mainly cognitive nature of management consulting value-creation potential.* The creation of new knowledge and the development of new managerial (diagnostic, therapeutic and/or interpretative) skills and capabilities, which both the client firm and the consultant can exploit once the consulting project has been completed, are the most significant potential results of the management consulting intervention25. However, empirical

<sup>23</sup> See Chapter four, Note 8 on the definition of 'primary client'.

<sup>24</sup> Some of the firms mentioned in this book wished to remain anonymous, and I have therefore used invented names for these firms.

<sup>25</sup> I consequently find myself in disagreement with contributions in the literature (e.g., Abrahamson, 1996; Abrahamson & Fairchild, 1999; Clark & Salaman, 1998b; Madigan & O'Shea, 1997; Shapiro, 1996) that take a 'skeptical approach' and view management consulting firms as «systems of persuasion creating compelling images which persuade clients of their quality and work» (Clark & Salaman, 1998b: 18), and management consulting as an activity that does not produce value for client firms but detracts value, and that leads to relationships that evidence shows that, despite the official claims of some consulting firms26, it is extremely rare for this potential to be consciously perceived and fully exploited. There are, in fact, very few cases where the client and the consultant consciously set knowledge creation goals for the consultancy project (Linnarsson & Werr, 2002). Furthermore, their efforts are very often taken up entirely by merely replacing the client's existing practices with the 'best practices' (mainly explicit knowledge) which the consultant proposes to 'transfer' to the client (e.g., Ernst & Keiser, 2002; Newell, 2005). By so doing, both parties in the consultancy relationship renounce contextualizing the best practices proposed by the consultant in relation to the specific client firm environment. They renounce socializing their pre-existing implicit knowledge base, and they also renounce embarking upon new practices and knowledge social construction pathways (Lave & Wenger, 1991). However, not only does implicit knowledge often constitute the most valuable cognitive resource owned by both parties, but it also represents the main potential outcome of the consulting intervention. From this, it follows that even in cases where the consultancy intervention

is deemed successful (because it has made it possible to solve the problem the consultant had been commissioned to solve), a big part (often the most important part) of the potential cognitive value of the relationship is often lost and/or not adequately exploited. I will address this specific feature of consultancy activity in greater depth in the Chapter VI.

Figure 2 provides a synoptic overview of the distinctive ontological (real, essential and relatively stable) features and logical relations which, according to my proposed definition, qualify the essence of management consulting activity.

are always very heavily weighted in the management consulting firm's favor. On the relationship between management fashions and management consulting, see the interesting contribution by Williams (2004). On the opportunity to be openminded and flexible, and to base one's judgment on the specific consulting context, when interpreting the consulting relationship and the 'power' relationships among those involved, see Fincham (1999a) and Sturdy (2002).

<sup>26</sup> In the communications to the market made by the big consultancies that offer 'high knowledge creation potential' consulting services, we may often notice such claims as «Our clients outperform the market 3 to 1» (Bain), or «We are successful if our clients have built in-house capabilities to solve their own problems the next time around» (McKinsey). See Poulfelt, Greiner and Bhambri (2005: 14).

Figure 2 – Th e ontology of management consulting activity: features and logical relationships.

#### CHAPTER III

## KNOWLEDGE CREATION THROUGH MANAGEMENT CONSULTING: A LITERATURE REVIEW

Knowledge is the main resource for underpinning the strategic development processes of entrepreneurial organizations (e.g., Drucker, 1995; Grant, 1996a)1 . Knowledge Management (KM) has consequently become a key theme both in management literature and in corporate practice (Abrahamson, 1996)2 . Traditional KM literature interprets knowledge as something that people own (the *knowledge-as-possession* view), which has an essentially explicit nature and that is relatively easy to transfer (e.g., McElroy, 2000; Ruggles, 1998). Hence traditional KM literature mainly focuses on techniques for gathering, imitating and disseminating knowledge - in essence, transferring the best practices (Newell, 2005). Conversely, the most recent literature (the *knowing-in-action* view) interprets knowledge as being mainly tacit, socially constructed, embedded in practice, contextdependent (Johnson, Marakas & Palmer, 2000), difficult to transfer (Szulansky, 1996), and therefore really valuable only when it is generated in a specific reference context (from which the *knowing-in-action* metaphor stems), thus shifting the focus of analysis from transferring only the best practices to creating and maintaining ideal conditions in order to fully

<sup>1</sup> Knowledge, human resources, and (intra- and inter-organizational) social relationships all now have higher levels of competitive value, as assets, than more traditional resources such as capital and natural resources. In addition to the interesting and original ideas put forward by Rullani (1994; 2004a; 2004b) and Vicari (Vicari & Troilo, 1999), for a general overview of these themes see, for example, OECD (1999) and the studies conducted by Bettiol (2005), Berini and Guida (2000), Cohen and Low (2002), Cravera, Maglione and Ruggeri (2001), Davenport and Prusak (1998; 2000), Eppler (2003), Lipparini (1998; 2002), Michaud and Thoenig (2004), Panzarani (2004), Prahalad and Hamel (1990), Rifkin (2000), and Stewart (2002). Regarding 'intellectual capital' (which has gained popularity as a theme in economic and management literature only in the last decade), I should like to pay tribute to the older, but in no way less original studies, conducted by Becker (1962; 1964; 1976) and Schultz (1958; 1960; 1962; 1981).

<sup>2</sup> There are many and often heterogeneous contributions in the literature on knowledge management and on learning organizations. On the wide debate of these themes see, for example, Daft (2001) and Garvin (1998). For some Italian experiences of enterprise knowledge management, see Genova and Montironi (2004) and Minguzzi (2006).

realize the knowledge generation process potential (Blacker, 1995; Buono & Kerber, 2005)3 .

As far as it contributes to solving entrepreneurial problems, consulting either disseminates or creates knowledge. It disseminates by applying already adopted solutions and practices to problems and needs that are new for the client. It directly creates knowledge by proposing solutions for problems that are new to the world or that are new to the client because of external events.

Such a basic distinction is corroborated by the international literature specifically concerned with management consulting. Without delving into the vast literature on practical consulting techniques, offering recipes on how to consult (e.g., Armstrong, 1993; Bellman, 1990; Block, 2000; Freedman, 2000; Schaffer, 1997a), how to start (e.g., Biech, 1998; Biech, Swindling, 2000), to manage (e.g., Maister, 1993), to protect (e.g., Shenson, 1990a) and to develop (e.g., Bly, 1998; Lambert, 1997; Shenson, 1994; Shenson & Wilson, 1993; Weiss, 1992) a consulting practice (Kass & Weidner, 2002), an analysis of the main literature enables one to identify two main interpretative paradigms of the management consulting relationship4 .

The first approach interprets the role of the consultant as a problemsolver and/or a supplier of expert knowledge (the *expert consultant* approach). According to this interpretative model, the firm engages the services of a consultant because it is facing some difficulties and/or is sensing symptoms of dysfunction, and entrusts the consultant with the responsibility of conducting a diagnosis (problem finding) and, subsequently, identifying and suggesting a solution (problem solving). The *expert consultant* must be endowed with specialized skills consistent with the specific (business and industry) sector of the consulting intervention, including those needed to tailor possible solutions to the client's particular setting (Bessant & Rush, 1995; Greiner & Metzger, 1983). Under the *expert consultant* approach, the knowledge creation potential of the consulting relationship is limited (almost non-existent as far as the client's role is concerned), and the knowledge which is transferred travels primarily in the consultant⇒client direction, taking on a mainly codified character.

Under the second interpretative approach (the *process-consulting* approach), the client retains full ownership of the problem in every phase of the consulting process, while the consultant acts as a guide in the diagnostic activity (which nevertheless mostly remains the client's responsibility) as well as a facilitator in the solution discovery and application

<sup>3</sup> It is, however, only on the development of new interpretative paradigms, able to join «[…] the pole of codified knowledge […]» and «[…] the pole of contextual knowledge […]» (Rullani, 1994: 68), that an economic theory which is really able to explain «[…] when and why knowledge is produced, exchanged and used in the economic circuit» (Rullani, 1994: 48) can be founded. See also Rullani (2004a, 2004b).

<sup>4</sup> On the success factors of management consulting see Bronnenmayer *et al*. (2016a, 2016b).

phases (Schein, 1987, 1988, 1999; Stjernberg, Werr, 2001). Starting from its initial phase, the intervention aims to fuel and develop the client firm's self-diagnosis and problem-solving capabilities, by setting in motion a bidirectional (consultant⇔client) transfer of mainly *process* (and hence tacit) knowledge. The *process-consulting* model has a far greater cognitive potential, and both parties in the relationship play a critical role in it, even though the knowledge creation potential connected with the use and the conversion of the consultant's explicit knowledge appears to be underestimated (Linnarsson & Werr, 2002).

To better understand the way consulting induces knowledge creation, it is however necessary to investigate the real cognitive dynamics through which the consulting relationship is implemented.

However, in neither of the aforementioned literature streams are there any specific, thorough analyses aimed at examining the cognitive paths through which new managerial knowledge creation is (or can be) induced by concretely implementing the consulting relationship.

The same limitation can also be found in the more recent literature which has adopted a specifically cognitive perspective in investigating management consulting (Buono, 2002; Clark & Fincham, 2002; Engwall & Kipping, 2002a; Engwall & Sahlin-Andersson, 2002a). Among the issues examined in this literature are:


<sup>5</sup> Of the diverse research projects that aim to study the creation and dissemination of the 'best management practices' throughout Europe, special mention should be made of the CEMP program (The Creation of European Management Practice), sponsored by the European Union. «The CEMP programme had three objectives: (1) to judge to what extent education, research and consulting are contributing to a homogenization in European business practice; (2) to determine whether this homogenization is more developed in some parts of Europe than in others; and (3) to contribute to an improvement of the European dimension in the diffusion and consumption of management knowledge» (Engwall *et al*., 2001: 5).


Only a small number of recent studies have shed light on the importance of the knowledge creation dynamics involved in the concrete implementation of management consulting interventions. Some authors have focused their attention on the complexity of the knowledge creation processes involved in the adaptation of the consultant's codified knowledge to the client's specific setting and the building among them of «communities of practices» (Todorova, 2004); on the importance of client-consultant faceto-face interaction to professional service firms' knowledge development processes (Fosstenløkken, Løwendahl & Revang, 2003); on the mainly tacit and socially constructed nature of knowledge created and used in consulting interventions (Newell, 2005; Visscher, 2006); on the factors which enhance, or reduce, the effectiveness of consultant-to-client knowledge transfer processes (Kirsch, Ko & King, 2005; Lahti & Beyerlein, 2000); and on the role of «epistemic communities» (Cowan, David, Foray & 2000) and «communities of practices» (Lave & Wenger, 1991) in interpreting and evaluating the impact of the management consulting intervention on the knowledge structure of the organization where the intervention takes place (Creplet, Dupouet, Kerna, Mehmanpazir & Munier, 2001). Others have highlighted the dynamic and (tacit and explicit) composite nature of the knowledge that is used/generated in consultancy activities as a consequence of the fact that in order to discover solutions, consultants must have the ability to apply pre-existing explicit knowledge to the specific consultancy context on a case-by-case basis (thus converting explicit knowledge into new tacit knowledge) as well as (and above all) «the ability to relate to the specific situation without having a […] normological model». Thus «the consultant, through processes of reflection and analysis, tends to become [also] a researcher» (Jensen, 2005: 372-374), that is to say, someone who is able to produce knowledge through insight as well as through externalization (i.e., conversion into new explicit knowledge) of experience-based (and hence, tacit) knowledge6 . Even though these recent studies have highlighted the potential fecundity of investigating the 'in action' management consulting knowledge creation dynamics, they never do delve deeply into those dynamics and, consequently, «our understanding of what actually happens with consultant knowledge (in essence their main product) and the knowledge of the client organization […] [still remains] murky at best» (Todorova, 2004: 74).

<sup>6</sup> I believe that an important contribution to the evolution of management sciences could be achieved by leaving the narrow confines of traditional academic views of research and consulting, whereby the main role of research is to create new knowledge, and the main role of consulting is to apply existing knowledge to concrete corporate contexts (Bonnet, Moore, Savall & Zardet, 2001). Management researchers need to be able to scientifically observe the object studied (the firm) and firms are increasingly complex, heterogeneous, and changeable. I am firmly convinced that observing the researched object 'form inside' and adopting an 'intervention view' makes our observations much more comprehensive than if we only observe the firm from outside. Our results and contributions to the development of management sciences could be far more significant if researchers were willing (and able) to act as consultants, even only for research purposes ('intervener-researchers'). The 'scientific consultancy' approach has had excellent results in France, for example, at the Institut de Socio-Economie des Entreprises et des ORganisations (ISEOR). This is discussed in Buono, Savall (2007) and in Bonnet, Moore, Savall and Zardet (2001).

## CHAPTER IV

#### MANAGEMENT CONSULTING AS A PROCESS

Figure 1 provides a schematic presentation of the different stages in the process1 of management consulting2 .

In real contexts, this process tends to take place with varying degrees of reiteration, and completeness3 , and it is also physiological for the different phases to develop 'along parallel lines', instead of sequentially. In this Chapter, for each stage, I shall examine the main contents (work to be done), the specific elements of risk and criticality, and the ensuing aptitudes and skills required of the consultant4 (and also of the client) for the phase to be carried through successfully.

#### *1. Starting up the consulting process*

The setup phase sees the first contacts between consultant and client, and this triggers the mutual learning dynamics that will continue until the conclusion of the consulting process.

<sup>1</sup> In the literature, the consulting intervention is often seen as a *process* with a number of sequential stages. My interpretation of the consulting process draws mainly on the studies by Kubr (2002) and Greiner and Metzger (1983). On this subject, see, for example, Aiello (1996), Lescarbeau, Payette and St-Arnaud (1990), Lippitt and Lippitt (1986), and the more recent studies by De Haan (2006), Rossettie (2004), and Stroh and Johnson (2005).

<sup>2</sup> In service industries whose output is mainly made up of *intangibles* (data, information and knowledge), production and delivery can be said to be simultaneous and the various stages in the (production-) delivery process can be interpreted as the different stages involved in completing that output.

<sup>3</sup> For example, as will be seen in greater detail in Chapter V, in the 'almostconsulting model' diagnosing the problem is not part of the process in that the client has already done this before the consultant is called in. Whereas in the 'classical model' the diagnostic and the therapeutic phases, are the central part of the process.

<sup>4</sup> In regard to which of the consultant's abilities the client deems to be most critical for the success of the consulting intervention, see, for example, Bobrow (1998b), Bowers and Degler (1999), Dowling (1993), Ford (1985), Hegyi-Gioia (1999), Kumar and Simon (2001), Popovich (1995), and Riley (1999). For a description of the main factors affecting the consulting process outcome, see Jang and Lee (1988), McLachlin (1999), and Schaffer (1997a; 1997b).

**Figure 3**: The *diachronic* interpretation of management consulting: the consulting process. Figure1 – Th e *diachronic* interpretation of management consulting: the consulting process.

Th is stage is very delicate for both players. Th e clients need to manage the 'main problem' for which the consulting service was required and, at the same time, they need to stay on top of the immediate problem, that of 'purchasing the service' (choosing which consultant to engage). Th e task is physiologically complex for it is arduous to obtain adequate information. Th e consulting service is a 'credence product', about which direct information is not immediately and directly available5 , and its attributes are not clearly discernible either before it is bought or, very oft en, in the fi rst stages of the consulting process6 . To make up for the scarcity of information, consultants have the diffi cult task of 'gaining the client's trust'7 (especially if this is a 'new client') with particular reference to their professionalism, integrity and skills; and they must also ensure that they do not raise overambitious expectations about the possible outcomes of their intervention. Th erefore, the initial contacts8 should be directly handled by partners and/

5 Th e only information the client can obtain is indirect and mediated (e.g., the consultant's reputation or comparable consulting experiences related by other fi rms). On the relationship between the management consultant's reputation and the eff ectiveness of the consulting intervention see Fink and Knoblach (2017). On the interactions between reputation and identity of management consulting fi rms dee Harvey *et al.* 2017.

6 On the purchase behavior of managing consulting services, see, for example, Edvardsson (1990) and Lonsdale *et al*. (2017).

7 See, for example, Czerniawska (2006a; 2007), Galford, Green and Maister (2000a; 200b), Green (2006), Kubr (2002), LaGrossa, Saxe (1998).

8 Th e person requesting the consulting intervention is not necessarily the real 'user' of the service. Even during the setup phase the consultant must then be able to obtain a clear picture of which people in the client fi rm will, directly or indirectly, or senior managers from the consulting firm and their approach should not be excessively geared either to selling the service ('marketing-dominated' attitude) or to defining the detailed legal and economic aspects of the assignment ('contractual' attitude).

How far the players involved are able to build a relationship based on trust and empathy9 , and to what extent they are aware of the delicate psychological factors involved in the early contacts10, is paramount if the consulting relationship is to 'get off on the right foot'. Important points to understand are that clients may show *symptoms of anxiety* because:


Similarly, consultants have to deal with their own emotional tensions, generated by wondering if:

• there is an effective solution to the problem the client is describing;

play a part in the consulting process, and what part they will play. The following taxonomy may be useful:

	- *- reference* clients, i.e. the consultant's reference points in the client firm (the members of the client firm's staff in charge of the consulting process);
	- *- end-user* clients, i.e. those who are most directly interested in the managerial problem being solved;
	- *- actuation* clients, i.e. those who are actively involved in "putting into practice" (implementing) the consulting project;
	- *- operational* clients, i.e. all the other persons in some way involved in the consulting process (e.g., knowledge providers, information support providers).

See also Ielo (1996) and Schein (1987) in this connection.

<sup>9</sup> As McLachlin (1999: 399) says «There must be a decent match of personality or management style (Shenson, 1990a), personal chemistry (Mitchell, 1994), and belief systems (Margolis, 1985)». That is the client and the consultant must try to work side by side in psychological harmony, and to establish some basis of shared meanings. In many cases, this is no easy task.

<sup>10</sup> «[…] the notion that rational models can satisfactorily explain interpersonal interaction seemed unrealistic, since they tend to ignore the "human" factor. Personal styles of behavior, whether we like it or not, are rooted in personality traits, and play a key role in the consultant/client interactive processes» (Adamson, 2000: 24).

• they can solve it. Every firm, and every business problem, is unique; and previous successes in comparable contexts do not guarantee that the consultant will be successful in the new assignment.

The parties' ability to establish a relationship based on mutual trust is vital since, even in the setup phase, the consultant conducts a *preliminary diagnosis*. The aim is not to analyze the consulting problem in depth, and is certainly not to come up with an immediate solution. The preliminary diagnosis is the necessary preparation for all the later stages, and its purpose is to 'discover' and understand the 'surface of the problem'11 through a critical analysis of a first set of data and information. Without an adequate (though synthetic) initial understanding of the problem it would be impossible to establish the realistic opportunities for a consulting intervention (Kubr, 2002). Especially when the consulting problem is complex, it is essential to make a critical assessment of the client's initial interpretation. This assessment very often leads to a redefinition and, by re-interpreting the evident and latent symptoms, the true nature and confines of the problem will be 're-discovered' (an ill-defined, or wrongly defined, problem is probably unsolvable12).

After the preliminary diagnosis, the consultant draws up the *intervention proposal* and the relevant *financial proposal*. The intervention proposal defines the object of the consulting intervention (the problem), sets out the objectives to be achieved, describes the intervention plan (tasks, phases, timing), and gives details about the roles, experience, abilities and qualifications of the consulting team that will carry out the project, and the roles assigned to the client firm's staff13.

The client's decision to purchase the service14 will not depend solely on the credibility of the proposed intervention plan. Other factors that influence its acceptance are:

<sup>11</sup> To understand the 'surface of the problem', consultants need to make use of their previous experiences and of their intuitive skills to get a full picture of the problem with regard to the client firm's business and structure, and in relation to staff abilities and responsibilities, and to the firm's present economic and financial situation, and to its prospects and targets.

<sup>12</sup> See Note 17 in this connection.

<sup>13</sup> Experienced consultants know that inadequate planning regarding roles (tasks, responsibilities) to be undertaken by the client will lead to problems and misunderstandings in the later stages of the process. For example, there would be serious difficulties if the consultant assumed that the client would undertake a given course of action but failed to inform the client, who had not expected, or intended, to do anything of the kind.

<sup>14</sup> The literature has a wide range of studies on the criteria that the client firm's management should adopt for an effective evaluation of the consulting intervention proposals (e.g., Brotheridge & Power, 2007; Green, 1963), and, more in general, for the effective management of the whole consulting process (e.g., Fischer & Rabaut, 1992; Wells, 1983).

.


The setup phase is concluded when the *consulting contract is drawn up and signed*. The *formal* contract should be clear and comprehensive as this avoids any misunderstandings about the parties' commitments. However, both parties should be aware of the importance of a different type of agreement: a *psychological* pact that cannot be codified in a legal document but that confirms their sincere commitment to work together in a spirit of trust and respect, which is essential for the success of the entire consulting process.

#### *2. Diagnosing the consulting problem*

This is the first stage in the consulting process to be prevalently 'operational'. After indications from the preliminary diagnosis, steps are taken to define the problem, to discover its causes, and to identify what resources/ abilities the client has that could be useful in the solution process16.

If we define the substance of the problem as being the 'gap' between the present (initial) state of the firm's structure, or a realistically foreseeable state, and the ideal (sought-for) state of this structure, we can distinguish three problem categories:


<sup>15</sup> Criteria for 'success fees', and similar payments, are not easy to establish, because it is difficult to determine *ex post* which changes in the client firm's structure and business performance results are a direct consequence of the consulting intervention. Another difficulty is that (most of) the effects will be produced after the end of the consulting intervention. In this regard, see Section 5 in this Chapter.

<sup>16</sup> On a conceptual level, diagnosing the problem does not include searching for a solution. However, practical consulting experience shows that cause analysis and the search for possible solutions are so very interdependent that they are never really effective unless tackled together. In this regard, see also Kubr (2002).

• *creative problems*. It is necessary to deliver a *new and different state* (not simply a modification of the present one) that will replace the initial state (whether it was normal or deteriorated).

The consultant will usually be faced with a combination of the above types of problems. Frequently, the diagnostic analysis will also change the nature of the problem itself, for example by showing that a radical innovation of the deteriorated initial state should prove to be far better than its simple correction.

For the definition of the initial state of the firm's structure, *analytical skills* are the best asset to have, while the identification of the state to be aimed for, especially in the third problem category, requires *insight* and *creative skills*.

The diagnosis should also enable the consultant to *define the problem*<sup>17</sup> in terms of *organizational collocation* (hierarchical levels, functional areas and/or organizational units where the problem and the causes are located); *ownership* (hierarchical levels, functional areas and/or organizational units most affected by the solution of the problem); *intensity* (absolute and relative impact on the resource systems, on capabilities, on operational processes, and on overall synthesis results), and *time collocation* (duration, frequency of symptoms, past evolution and expected evolution).

To *identify the causes*, the consultant must deconstruct the problem, starting with an analysis of the symptoms manifested. The aim is to identify the significant cause-effect relationships between basic components. This work calls for the simultaneous application of analytical, synthetic, empathetic, and intuitive skills.

*Analytical skills* are indispensable for the deconstruction of the problem and the reconstruction of the system of cause-effect relationships between the significant variables18. The complexity of the managerial problem is affected by:

• the quantity and intensity of the mutually influential relationships between the variables. Often, variables belonging to the substance of the

<sup>17</sup> A correct definition of the managerial problem can mean that the consultant will not solve «the wrong problem instead of the right problem, or alternatively […] the least important problems given the limited resources of the organization» (Kilmann, 1979: 32).

<sup>18</sup> Collecting and elaborating all the significant data and information is essential if the diagnosis is to be effective. There must be adequate selection criteria; and the data must be sufficiently detailed.

There are three main categories of information sources which can be used by consultants:

• company records which are already available or can specially be requested by the consultant (e.g., accounting records, and statistical records), giving data and information which can be read and transcribed, and are obtainable from the relevant storage support systems (hard copy or computer files, graphs, diagrams, etc.);

problem influence one another and become at one and the same time both cause and effect (circular relationships);


*Synthesis and intuitive skills* are fundamental for the consultant to be able to identify the nature and direction of the relationships, and to identify the real causes and effects of the problem, by distinguishing between which of the variables involved are *relatively primary* and which are *relatively secondary*20. These skills are critical and very rare at one and


Since the final aim of the consulting intervention is to introduce changes, and as these changes are primarily cognitive in nature, direct observations and the anecdotal information from the questionnaires/interviews are absolutely essential as sources, and often have a greater impact on the final outcome of the intervention than the codified data sources.

<sup>19</sup> For an interesting example of a firm diagnostic check-up tool which incorporates some practices used by the main strategic consulting firms (for example, Bain and Company, Booz Allen & Hamilton, Boston Consulting Group), see Hagerty (1997).

<sup>20</sup> A number of different analytical methods can be adopted to identify relationships, proportions and (present and emerging) trends, and for other functions which the nature and function of the consulting assignment necessarily entail. These methods may be mathematical (equations that specify the relationships between variables, indexes that express input/output ratios or the internal structure of a particular variable, etc.); they may be statistical (averages, dispersions, frequency distributions, correlations, regressions, etc.); or graphical (e.g., flow charts). Techniques for drawing comparisons (for comparing present and past, planned and delivered, firms in the same industry, etc.) are often essential. They are needed to obtain a full picture of the firm and of the consulting project, and to clarify the significance of the data and of the main variables. If experimental research tools and methods could be used, this would undoubtedly make it easier to ascertain the existence, intensity and direction of the cause-effect relations between the significant variables. If we were able to remove one of the hypothetical causes and then test to see whether or not a given effect were still present, it would be possible to exclude (or confirm) that the primary cause had been isolated, for example. Unfortunately the same time; and some people think that such skills can be developed, through the consulting experience, only in individuals endowed with innate intuitive talents21.

It is essential the consultant be able to stimulate a collaborative environment (*empathetic skills*), which:


Being aware of what errors clients tend to make when assessing problems will help the consultant to recognize such errors, to escape being unduly influenced by them, and to avoid committing similar ones. Perhaps the most frequent error is *confusing the symptom with the problem*. But many errors are due to *preconceived ideas* (the client 'knows' what the causes 'must' be without having carried out the necessary investigations). Others stem from *over-specialized visions* (a mono-functional view of problems prevents one grasping the physiologically multi-disciplinary nature of corporate problems), or from *insufficient available time*.

An analysis of the client's problem-solving potential usually centers on:


for the consultant, a firm is not a laboratory, and such experiments can rarely, if ever, be carried out.

<sup>21</sup> Sometimes, the synthesis of the problem can be arrived at deductively. For instance, the consultant 'recognizes' similar patterns (forms) that had been seen in previous consulting projects (gestalt approach). However, this happens infrequently. Usually, most or part of the problem will be unique, or at least new for the consultant. In that case, only inductive methods can be adopted to discover what the problem is and where the primary causes lie; and this requires the skillful application of creative synthesis processes, and a great deal of insight.

<sup>22</sup> To this end, the consultant must be able to work closely with the client firm's staff from the very first phases of the consulting process. But more is needed: the firm's staff must be adequately informed and trained as to why a consulting intervention is necessary, how it will be carried out, and to achieve what aims. 23 See Chapter V in this connection.

1

The *diagnostic report* (listing the diagnostic steps taken and giving an analytical description of the problem, and of its direct and indirect causes) concludes this delicate phase of the consulting process, and makes it possible for the client and the consultant to check the logical and interpretive power of the analyses made.

#### *3. Finding and planning the consulting solution*

Provided that the relationship is not broken off at the end of the diagnostic stage24, in this phase the consultant identifies possible solutions to the problem diagnosed, evaluates their feasibility, assists the client in the choice of a solution, and programs its practical realization (Kubr, 2002).

The consultant's *creative skills* come into play for it takes real insight and vision to project a wide range of innovative solutions. It is these abilities that make the consultant an 'agent of change' (Docherty, Stjernberg & Werr, 1997).

It is not the consultant's task to find the 'best solution of all' but to set in motion a problem-solving process, and to facilitate the search by providing the client with all the information required for a well-reasoned choice of the 'best possible solution in the given corporate context'. As it concerns the 'not delegable entrepreneurial functions' (Ciampi, 2004; Fazzi, 1982) of the client firm's top-level managers25, the decision about which solution to take cannot be delegated to anyone else inside the firm, and it certainly cannot be left to outsiders. It is the *sole property* of the client firm's top management, just as the problem itself is.

The active participation of clients in this phase means that:


The consultants' *ability to identify possible solutions to the diagnosed problem* finds valid support in the *ability to interpret the organizational and strategic realities of firms*; an ability that can be mainly acquired through consulting experience. There are limits, however, to the recourse to solutions that have already been adopted in previous consulting interventions. The limits are connected to:

<sup>24</sup> One reason for breaking off the consulting process at the end of the diagnostic phase could, for example, be that clients think they are able to work out the solution without further outside help.

<sup>25</sup> See Chapter II.


Hence, the consultant must know how to activate and manage cognitive processes for the co-operative generation of new ideas (and/or new combinations of ideas) through *creative thinking*26 and *lateral thinking*27. These techniques induce the conscious, deliberate separation of the idea generating phase, from the phases of selection and analytical evaluation; and they encourage a situation of 'suspended judgment' (giving free rein to one's thoughts is encouraged; all premature criticism of the generated ideas is excluded), and of unconditioned freedom ('lateral thinking' and 'divergent thinking'). The goal is to bring to the surface as many ideas as possible (quantity not quality is the objective), even if these ideas seem unrelated to the problem itself, its causes, effects or the involved functional areas (generating 'crazy ideas' is encouraged)28.

The client and the consultant need to use their creative skills to the full; but to do this, they must be aware of the psychological barriers that may hinder their creative powers and make their cognitive processes for new idea generation less effective. There are several obstacles to creative thinking. If one is aware of them, they can be avoided and/or overcome. Some relate to:


<sup>26</sup> In regard to creative thinking techniques (brainstorming, synergism, morphological analysis, etc.), see Rawilson (1981).

<sup>27</sup> In regard to lateral thinking techniques, see, for example, De Bono (1977; 1991).

<sup>28</sup> In these cognitive processes a number of factors play a critical role, such as the feeling of frustration due to the apparently fruitless and inapplicable ideas that are aired; and also the attempts at idea 'cross-fertilization' (combining dissimilar ideas) as well as the activation of incubation periods, whereby intentional creativity processes are broken off suddenly, and attention is focused on other activities, thus enabling people to 'deposit' the problem in their subconsciouses. This weakens inhibitions and helps to remove emotional 'blocks' toward new ideas, and lets people maximize their innate, untapped intuitive abilities, which may lead to unexpected insights and new, unthought of, solutions.

1


'Suspending judgment' is instrumental in generating innovative solutions. At some point, however, the problem-solving ideas identified need to be classified, *evaluated*, and *selected*29. Whatever the evaluation technique adopted (linear programming, decision analysis30, etc.), it is useful to:

	- can weight not only quantitative criteria (e.g., the cost of new machinery to modernize production systems) but also qualitative criteria (e.g., improvements in decision effectiveness through a change in the management's organizational structure model), by associating numerical values with adjectival scales; and
	- attribute weights so as to be able to compare heterogeneous evaluation criteria (e.g., economic criteria and organizational criteria).

Once the most feasible solutions have been evaluated and selected, the consultant draws up the *therapeutic plan* and presents it to the client. For each proposed solution, the plan should show:


# *4. Implementing the solution*

Through the solution implementation stage, the proposed changes in the firm's structure are applied, and the programmed results are 'put to the test'.

<sup>29</sup> To evaluate the problem-solving potential of the ideas generated during the creative phase, there must be a return to rational thought processes (analytical thinking and 'convergent thinking').

<sup>30</sup> On decision analysis models, see, for example, Ulvila and Brown (1982).

<sup>31</sup> A good therapeutic plan must establish not only *what* should be done but also *how* the plan should be realized.

Unless the therapeutic intervention is relatively simple, an adequate involvement of consultants in the realization stage32 is fundamental33. That way they are spurred not to abandon the problem (and the client) before putting into practice worked out solutions34 and making sure they work effectively. And they will also be less likely (in the early stages of the consulting process) to propose «brilliant ideas that do not stand up rather than less brilliant but nonetheless thoroughly functional solutions»35.

In this stage, the consultant must deal with the client's 'cognitive gaps'. In the sense that even when clients have taken an active part in the diagnostic and therapy-planning stages (and are sincerely convinced of the need for the agreed changes), they tend to overrate the difficulties that come to light during the implementation phase, with the result that they soon lose faith in the new solution, no longer believe in the advantages it will bring, and think instead about returning to solutions that had been adopted in the past.

The management of these cognitive divergences may be facilitated:

• by a realistic, adequately organized and clearly defined therapeutic plan, and realistic schedules for its implementation. This will limit any set-

<sup>32</sup> In 'real' consulting contexts, to what extent the consultant is involved in the implementation stage will depend primarily on the consulting model adopted (see Chapter V), on the abilities and the time available to the consultant and the client, and on the type of problem to be solved.

<sup>33</sup> How effective the implementation stage is depends to a great extent on how well the consultant and the client cooperate in the earlier stages. If the client is not convinced by the plan, and/or if the consultant has worked out the plan on the basis of inexact and/or incomplete information, the chances of success are very slim.

<sup>34</sup> Often the ideal solution is to form mixed teams (i.e. made up of consultants and members of the client firm's staff) which include the people who were engaged in working out the therapeutic plan. This facilitates collaboration, participation, and commitment, by both the parties, regarding the new methods and techniques introduced through the consulting intervention. This solution also maximizes results in terms of the new knowledge and capabilities acquired by the client firm. If the metaconsulting model is adopted, the client is now able to complete the learning process begun in the earlier stages of the process. There are two possible alternatives to a client-consultant joint solution implementation:


<sup>35</sup> The last decade has seen an increasing demand by large and medium-sized firms for consulting interventions to focus mainly on solution implementation (e.g., Poulfelt, Greiner & Bhambri, 2005).

backs when the plan is being put into practice; and it will also increase the client's awareness of the main obstacles to be overcome, and of the methods through which these obstacles can be faced;


Some solutions that may maintain an active involvement of the consultant, yet at the same time keep the overall costs of the consulting intervention down, are:


Experienced consultants agree that the effectiveness of the solution implementation process depends to a great extent on how well the timing of the changes is managed. The following points are crucial:


<sup>36</sup> While the diagnostic and therapeutic planning phases require analytical abilities, intelligence and creativity, the implementation stage requires, above all, 'courage' and 'self-confidence'.

1

ing the change gradually, in successive, relatively short stages, which are alternated with adequate consolidation periods (the interventions should be quick and frequent37, but discontinuous and gradual).

## *5. Evaluating consulting results and ending the process*

When and how the relationship is concluded is by no means irrelevant for an assessment of the overall success of the consulting intervention.

It is true that the relationship may be ended early because of a unilateral decision by the client, who is dissatisfied with the consultant's work. But more frequent reasons for termination before the objectives have been fully achieved are that:


Late termination of the relationship (after the initially scheduled termination point) happens most frequently:


Late termination may leave clients feeling frustrated, too, (because the objectives have not been achieved within the time limits scheduled); and it may also cause them to become over-dependent, and unable to ta-

<sup>37</sup> I am in agreement with analysts like Schaffer (1997a; 1997b) who stress the importance of scheduling and achieving intermediate goals, with improvements that can easily be measured, are incremental and rapidly deliverable, rather than concentrating only on general, wide-ranging objectives.

<sup>38</sup> If the consultant 'takes off', the client may feel frustrated (because the programmed assignment has not been completed) and/or may feel less able to run the firm and take decisions ('separation syndrome').

ke decisions without the reassuring presence of the consultant ('separation syndrome')39.

Monitoring and evaluating the consulting intervention serves to determine to what extent the therapeutic plan's objectives have been achieved, and to check that the results achieved are consistent with the resources used. Evaluation should take place during the solution implementation stage (progressive valuation) so that contingency measures can be taken quickly if necessary, but also when the intervention is concluded (end valuation), and also after the conclusion (follow-up valuation).

Evaluating management consulting interventions is complex40 for many different reasons, some of which are:


The consulting process is concluded when the consultant presents the final report, which summarizes all the measures taken and the results obtained in the different stages of the process, with specific details regarding:

• the objectives effectively achieved. Not only those directly related to the solution of the problem for which the assignment was given (e.g., a

<sup>39</sup> In addition to choosing the 'right time to leave', the consultant should also consider that a 'gradual withdrawal' may be advisable in that there would then be less risk of the client wanting to 'go it alone' either too soon, or not soon enough.

<sup>40</sup> Both consultant and client need to take an active part in the evaluation process, with mutual trust and the willingness to give merit where it is due and to recognize one's own mistakes and shortcomings. Diverse authors have discussed how difficult it is to objectively evaluate and measure the real effects of management consulting interventions, for example Engwall and Kipping (2002a), Ernst and Kieser (2002; 2003), and Wright and Kitay (2002).

Other authors (e.g., Faust, 2002; Sturdy, 2002) underline the fact that the client takes an active role in evaluating the knowledge generated/transferred through the management consultant's intervention.

return to a given level of productive efficiency), but also indirectly induced achievements (e.g., the development of new skills and capabilities in a given functional area); and

• the consultant's recommendations regarding criteria for the future utilization, monitoring and further development of the implemented solution. These recommendations aim to consolidate the new state of the client firm's structure which has been achieved through the consulting process.

1

#### CHAPTER V

#### MANAGEMENT CONSULTING MODELS

By focusing on the specific features of each phase, the *diachronic* approach (consulting process) does not reveal the overall picture of the essential variables of the relational dynamics on which the cognitive (i.e. knowledge creation) value, and hence the full success of the consulting relationship, depends. The consultancy process tends to take place with varying degrees of looping and reiteration, of completeness, and of intensity regarding client-consultant cooperation. The differences will depend on the required service configuration, on the managerial problem to be solved, on the ways the service is delivered and, above all, on the *consulting model* adopted (the *synchronic interpretation* of management consulting; see Ciampi, 2008b, 2009).

The *nature of the relationship* established and developed between the consultant and the client is key to the *synchronic interpretation* of management consulting. A number of factors become particularly relevant, such as the structure (i.e., the system of qualitative and quantitative features) of the managerial problem to be solved, the volume of specific investments required from both parties, the mainly codified or tacit nature1 of the starting knowledge they

<sup>1</sup> *Codified knowledge* is knowledge that can be communicated and stored by way of appropriate codes or languages. As it can be 'put down in black and white', this type of knowledge can be transmitted and used also by individuals other than those it was produced by. The fundamental sciences (chemistry, physics, etc.) and the engineering sciences (chemical engineering, aeronautical engineering, etc.) are typical examples of codified knowledge systems. Scientific articles and publications are manifestations of the codification and transmission, through codes and languages, of scientific discoveries.

*Tacit knowledge* cannot be 'put down in black and white', because it has no codes or languages. This type of knowledge can be transferred from one organization to another only by 'moving' the subjects that generated the knowledge. For example, knowledge pertaining to 'experience' can be transferred from one firm to another only by physically moving the persons that have the knowledge. It is more difficult, consequently, to spread tacit knowledge, and the costs and constraints are much higher than with explicit knowledge. However, much of the competitive success of business organizations rests on the availability of this type of knowledge. For instance, a firm's competitive advantage can often be sustained only if new tacit knowledge is continually created and if this knowledge is turned into gradual technical (product or process) improvements. These knowledge creation dynamics own, the nature of the knowledge generated and transferred through the relationship, and the intensity of the knowledge generation/transfer dynamics.

The quality and quantity of the client's starting knowledge base are critical, as is the degree to which the consultant is inclined, and able, to activate and manage knowledge creation/transfer processes. Many different possible combinations have been identified in the literature regarding the forms that these features may assume (Maister, 1993; Schein, 1987, 1988, 1999). Here, I shall simply present three of the possible combinations, which, I believe, can be seen as theoretical configurations (models). Each is a conceptual abstraction that, as such, tends to take a different form in each specific consulting context2 . Each model identifies a different 'mode of reasoning' and a different 'way to relate to the client' that the management consultant may adopt (see Figure 1).

Under the *almost-management consultancy* model, the client firm needs specific information and/or cognitive support to implement solutions to already diagnosed problems. The client company has already identified the problem, the type of intervention required for its solution, and the consultant to be engaged. After having established the need for a specific input of information or expertise in a given area, the client firm concludes that it does not have the capability to implement the solution on its own, or it concludes that it is more economically or politically3 convenient to outsource it.

depend on the experience and/or learning abilities of specific individuals and/or teams of individuals. To summarize, we can say that:


<sup>2</sup> In the course of the consulting process, the consulting model adopted may undergo various types of metamorphoses, which may lead to a spontaneous (or programmed) change in the consultant's role. The change may be from a passive role (the consultant simply supplies data and information requested by the client) to an active role (consultant and client work 'side by side' to solve the problem), to a maieutic role

(the consultant helps the client firm to develop the necessary capabilities to 'cure itself'). 3 Some authors believe that the consultant's main roles include being a:



**Figure 9**: The *synchronic* interpretation of management consulting: consulting models. Figura 1 – Th e *synchronic* interpretation of management consulting: consulting models.

From the outset, the client-consultant interaction is highly structured with regard to mutual role expectations. Th is model assigns a critical role to the client fi rm, as it must have the capability to:


Th e consultant, whose role is merely that of a 'knowledge provider', is required to possess *specialized expertise within the specifi c area* with which the consultancy intervention has to deal. Th e transferred knowledge mainly travels in the consultant⇒client direction, and takes on an almost exclusively codifi ed character. Th e consultant's intervention has only a slight impact on the client fi rm's structure and therefore remains on the borderlines of management consulting work6 .

With the *classical* model, the company perceives symptoms of certain dysfunctions, but is unable to clearly spell out the scope of the problem, and is in no way able to identify the most appropriate solutions. Th e responsibility for conducting the diagnosis (problem fi nding) and subsequently identifying and suggesting the solution (problem solving) therefore falls to the consultant, who is given broad margins of freedom by the client. Th e client completely relies on the consultant and the remit is not only to fi nd a remedy

1 4 If the evaluation of the knowledge required to solve the problem is the client fi rm's responsibility, and if the fi rm chooses a consultant who does not have this knowledge, then the fi rm will have to accept responsibility for the limited results that can be achieved (Schein, 1987).

5 An unsatisfactory outcome to the consulting relationship is oft en due to the fact that the consultant did not fully understand the nature of the problem to be solved.

6 One example of an almost-consulting relationship is when a fi rm lacks the necessary competencies to launch a new product in a particular geographical area, the project can be postponed no further, and the fi rm entrusts the consultant with the implementation of the launch.

but also, and above all, to define the 'borderlines of the disease'. The diagnostic phase can sometimes carry the process to unexpected destinations, and may identify problems that are very different from the generic expectations that had originally led to the engagement. The relationship is much less structured, and its effectiveness is greatly influenced by the client's willingness (and capability) to become involved in the various phases of the consulting process7 . While the client should be involved as intensely as possible, in principle, the more complex the problem, the more necessary is active client cooperation from the very first phases of the interaction (by a joint diagnosis of the dysfunctions, the problem is correctly reconfigured). The generated and transferred knowledge is mainly codified but, in contrast to what happens in the *almost-management consulting* model, the transfer is bidirectional (consultant⇔client). For the classical model to perform effectively:


<sup>7</sup> The clients' capability depends mainly on their previous experiences (for example, the client may have already used the consultant's services). The clients' willingness is closely connected to their entrepreneurial culture and psychological mindset (for example, if they want to use the consultant simply 'to get rid of the problem', then the desire to collaborate will be minimal). See Aiello (1995) in this regard.

<sup>8</sup> See Chapter IV.

<sup>9</sup> Despite the importance of a transparent and correct communication of the conducted diagnosis, empirical evidence shows that some consultants, on the contrary, deliberately use 'obscure' or 'sophisticated' language, assuming, often wrongly, that they will so win over the unconditional trust of the client.

re')10. In the setup stage of the consulting process, neither the consultant nor the client is in a position to foresee the final results. And especially when the managerial problem is particularly complex, clients are sometimes bewildered by the diagnosis made (as this may go against much, or even most, of their expectations regarding the nature of the problem) and also by the therapy proposed which, even though theoretically correct, might not be viable because of conflict with the value system and/or with the deep strategic identity of the client firm. In that case, the client firm will be unable (or, more often, unwilling) to implement the solution proposed by the consultant.

In conclusion, the *classical* model is appropriate provided that the client firm ('patient') is willing to rely wholly on the consultant ('physician') with regard both to the diagnosis and the therapy, is willing to implement the prescribed measures ('to take the medicine'), and to give up the idea of developing autonomous self-diagnosis and problem solving capabilities11.

The *meta-consultancy* model is the most ambitious one: the client retains full ownership of the problem in every phase of the consultancy process in the assumption that no one knows more about the firm's strategic, managerial and cultural context than the client, and, consequently, no one is better placed to determine the real scale of the problem and the true feasibility and effectiveness of any possible solution interventions. The starting point is similar to the one in the classical model12: the client perceives certain shortcomings and dysfunctions, but is not able to pinpoint their origin, does not know how to deal with them, and finds it difficult to choose the most appropriate consultant. However, the degree of client involvement is far higher in every phase of the consulting process, particularly from the cognitive point of view. The consultant plays a 'leading role' in the diagnosis (which nevertheless remains within the client's responsibility), acts as a 'facilitator' for the solution discovery and implementation phases, and may also suggest recourse to further (external and/or internal) specialist resources if these are deemed necessary. The problem remains the client firm's13, and

<sup>10</sup> Obviously, if the client lacks either the abilities and/or the real desire to implement the change proposed by the consultant, then the consulting intervention is doomed to failure (Ginsberg, 1986; Jang & Lee, 1998; Kolb & Frohman, 1970; Rynning, 1992; Turner, 1982).

<sup>11</sup> One example of a 'classical model' consulting relationship is when a firm perceives symptoms of financial tension (e.g., a progressive drop in the cash flow) but knows that turnover and profit margins are going well. The consultant will identify the problem (perhaps accounts receivables have exceeded physiological levels) and the solution (e.g., reduce sales to customers that do not keep to agreed settlement dates).

<sup>12</sup> It may, and frequently does, happen that relationships start out following the classical model but evolve toward the meta-consulting model.

<sup>13</sup> The literature (e.g., Armenakis & Burdg, 1988; Eccles, Shapiro & Soske, 1993; Greiner & Nees, 1985; Madigan, O'Shea, 1997; Mitchell, 1994; Payne, 1986; Shenson, 1990a) makes ample reference to the fact that the client firm is the sole 'owner' of the problem and must retain control over the consulting process at every stage; and that it must take the final responsibility for the outcome of the process.

the work of the consultant consists of 'helping the client to help himself', by appealing to the client firm's present aptitudes and capabilities and supporting it in creating new aptitudes and capabilities. From the initial phases the consulting process is designed to fuel and develop the client firm's selfdiagnosis and problem-solving capabilities, by implementing bidirectional (consultant⇔client) transfers of mainly 'process' (i.e., tacit) knowledge. In conclusion, the meta-consulting intervention does not only aim to maximize the possibilities of solving the immediate problem. It goes much further, and the main purpose is to enable the client firm's top management to enhance its own level of autonomy when dealing with future managerial problems (Schein, 1987). Necessary conditions for effective meta-consultancy are:


<sup>14</sup> Attitudes of antagonism and/or rejection toward a diagnosis 'coming from the outside' are most frequently present in client firms whose culture has a strong in-built 'resistance to change'.

techniques and hence acquire new capabilities reusable in the future to solve problems autonomously, even problems which are not necessarily similar to those directly addressed in the consulting intervention;

• the client firm must be strongly motivated to develop autonomous problemsolving capabilities and must effectively be able to implement the related learning processes. The client firm's cognitive flexibility (i.e., its receptiveness to change and its ability to challenge its culture and working methods) is essential to ensure the effectiveness of the knowledge generation process set in motion in the course of the meta-consultancy intervention15.

Over the past ten years we have commissioned more than twenty different consulting firms to carry out more than forty strategic consulting projects. In the last five years, despite the fact that we have almost doubled our turnover and that the managerial complexity of our business has certainly grown, we have only implemented two consulting projects within the strategic field (one on the 'redefinition of our concept of customer loyalty' and the other on the 'redefinition of our value chain') using only one consultancy firm, Beta S.p.a. The fact is that after the first consulting project carried through by Beta S.p.a. our managers began to consider it possible to develop their own autonomous capacities to define, diagnose and solve problems, even when those problems belonged to completely new strategic contexts from those experienced in the past. For us, the risk of failure became a challenging opportunity for developing these capacities, an occasion that all the managers in our group are anxious to address, and no longer something from which to defend themselves, avoiding the problem as far as possible or offloading it onto external 'specialists'. The consultancy projects implemented by Beta S.p.a. are much more demanding than those implemented previously and cost almost twice as much. But the value they enable us to create in terms of new strategic and managerial skills and capabilities is immeasurably higher.

This revealing comment was made by the chairman of a multinational corporation working in the clothing industry, which owns three world-famous high-fashion labels and were reported to me by two partners of Beta S.p.a., a medium-sized Italian strategic consultancy firm that adopts intervention techniques consistent with the model we have defined as *meta-consulting*.

Table 1 offers a synoptic picture of the essential features qualifying each of the three consultancy models described above.

<sup>15</sup> One example of a meta-consulting relationship is the following. A firm realizes there are some inconsistencies in its competitive position. The consultant helps the client to identify what is wrong, by the joint construction and experimentation of models, methods and techniques for competitive position analysis, for competitor analysis, and for the analysis of competitive environments and trends, etc. However, the consultant lets the client pinpoint the inconsistencies and organize the repositioning process. That way, the consultant helps the client firm to improve its strategic decision-taking capabilities.

Table 1 – Consulting models: essential features of intervention object (entrepreneurial problem), parties in the relationship (client and consultant), consulting relationship, and outcomes (induced/sought effects).


**INDUCED/ SOUGHT EFFECTS**

**Primary risk**

**Primary goal**

High

Very high

Mainly operational

Entrepreneurial-technical (solving the

problem)

Entrepreneurial-cognitive (developing the

client firm's self-diagnosis and problem

solving capabilities)

Inconsistency between cognitive potential

and client's capacity/will to learn

(implementing the problem solution)

High level of client dependency on

Inconsistency between "prescription" and

strategic identity of the client

consultant

**involvement**

**ESSENTIAL FEATURES**

**ALMOST-CONSULTING**

**CLASSICAL**

**META-CONSULTING**

**Breadth/**

Limited

High

Very high

**complexity**

**CONSULTING MODELS**

**ENTREPRENEURIAL** 


### CHAPTER VI

#### META-CONSULTING KNOWLEDGE CREATION PATHWAYS

## *1. Knowledge creation through knowledge conversion: Nonaka and Takeuchi's theory*

Nonaka and Takeuchi (1995) define a firm's knowledge creation capacity as the capacity of an organization as a whole to generate new knowledge, to disseminate it internally and translate it into products, services and systems.

The organizational knowledge creation theory they developed is based on the possibility of categorizing cognitive resources in terms of the following two essential dimensions:

• the *epistemological* dimension, which makes it possible to distinguish between explicit and tacit knowledge1 (Arrow, 1962; Gelwick, 1977; Polanyi, 1966, 1985). *Explicit knowledge* can be expressed, codified and easily transferred between different people through formal and systematic languages. *Tacit* (or implicit) *knowledge*, on the contrary, originates from personal experiences; it is difficult to formalize; and it resides exclusively in the minds of individuals2 (personal insights, personal experiential skills, etc.)3 , often at different levels than that of 'full awareness'. Since explicit knowledge is only 'the tip of the firm's knowledge iceberg' (Figure 1), where the foundations are essentially 'tacit events' (which are difficult to express and share)4 , the fulcrum of

<sup>1</sup> See Chapter 5, Note 1.

<sup>2</sup> In this regard not always the firm, though made up by thinking individuals, is able to emulate the cerebral structure of each of them. Excessively emphasizing the 'firm as a cognitive system' metaphor can therefore be misleading (Golinelli, 2010).

<sup>3</sup> Tacit knowledge has a dual nature: it is both technical and cognitive. The technical dimension includes all the informal skills that make up the 'technical know-how' necessary for a given operation. The cognitive dimension is the full set of beliefs and mental schemes that help a person to perceive the world and define it, and to imagine its possible developments. See Nonaka, Takeuchi (1995). 4 Polanyi (1966; 1985) reached his definition of the tacit part of knowledge as a

direct result of recognizing the role played by the *personality* of 'knowing' subjects (understanding is a personal act that cannot be replaced by a formal operation; a person knows more than he/she is able to express). According to the knower subthe entrepreneurial process of knowledge creation lies in the capacity to mobilize, convert and disseminate the tacit knowledge of individuals throughout the organization;

• the *ontological* dimension, which makes it possible to categorize knowledge in relation to the entities involved in its creation (individual knowledge, group knowledge, organizational knowledge, inter-organizational knowledge). Th e fi rm's knowledge creation process can be described as an interactive, looping and spiral shaped process moving away from the individual level and gradually expanding and rising through ever higher ontological levels, which involve increasingly broader interacting communities.

Th e interactions between individuals (social interactions) set into motion processes of knowledge evolution along the epistemological and ontological dimensions, thereby triggering a spiral of knowledge conversion processes (Nonaka & Takeuchi, 1995)5 .

Figure 1 – Polanyi's knowledge iceberg.

ject-known object separation axiom, human beings (subjects) acquire knowledge through analyzing external objects. Polanyi makes an important contribution to overcoming this axiom, in that he stresses that human beings acquire knowledge through active interaction with the objects in the world.

**Figure 11**: Polanyi's knowledge iceberg.

5 Nonaka and Takeuchi (1995) go beyond Simon's (1988) Cartesian rationalism, and make a crucial contribution by extending the interpretation of knowledge creation organizational dynamics, to include knowledge dimensions that had not previously been given their due weight, such as the 'behavioral' dimension, introduced by Barnard (1938), and the 'tacit' dimension discussed by Polanyi (1966).

Here are the main hypotheses on which Nonaka and Takeuchi's model is based:


1

The *socialization* pathway consists of processes of tacit knowledge sharing among individuals, and generates new tacit knowledge through the social interaction arising therefrom. Since tacit knowledge cannot be codified, this cognitive path requires experience sharing, which in turn activates 'fields of interaction' between those who possess a given experience and those who wish to acquire it. This may happen, for example, through recourse to on-the-job training practices6 thus reproducing the apprentice-master craftsman relationship, in which the former learns from the latter through observation, imitation and practice. By way of 'dialogue and group reflection' and methods of inductive and deductive reasoning, the *externalization* process makes it possible to convert tacit knowledge into new explicit knowledge, which takes the form of metaphor, analogy, concept, hypothesis and/or model. The complexity of the process is due to the fact that, in addition to being uncodified, implicit knowledge is closely linked to the mental models of individuals who possessed it. The *combination* process makes it possible to produce new explicit knowledge by sorting, adding, combining and categorizing pre-existing explicit knowledge. Information and Communications Technologies facilitate this process by networking, and hence 'systematizing' distinct corpuses of explicit knowledge. Finally, *internalization* makes it possible to convert explicit knowledge into new tacit knowledge: applying explicit knowledge (codified in documents, manuals, etc.) to specific operational environments enables individuals to contextualize that knowledge, 'to take possession of it', and to transform it into new implicit knowledge.

The nature of the new created knowledge depends on the way it is converted (Figure 2). Socialization produces *sympathetic* knowledge, that is to say, shared technical abilities and mental schemes. Externalization creates *conceptual* knowledge (for example, the concept of a new product structure). Combination produces *systemic* knowledge (for example, the conceptual architecture of a new technology). Internalization produces *operational*  knowledge (for example, project management innovative know-how).

Creating new knowledge can be viewed as a continuous and dynamic meta-process consisting of parallel iterations of the four knowledge conversion processes, the spiral shape of which shows the expansion of knowledge toward increasingly higher qualitative (i.e., *epistemological*)

On the firm as a learning organization, also see (for example) Argyris and Schön (1998), Miggiani (1994), North (2005) and Tomassini (1993).

<sup>6</sup> In order to be able to design a bread-making machine which would produce bread that was as good as that made by hand, the head of the software development division of the Japanese firm Matsushita Electric Industrial Company and several of his engineers decided to do 'apprenticeships' in the best bakery in town so as to learn through direct experience how to make dough first hand (tacit knowledge learning). See Nonaka and Takeuchi (1995).

<sup>•</sup> interaction between subjects must take place in an appropriate social context if the knowledge creation processes are to function effectively.

and *ontological* levels (from the individual to the organizational level, and to the inter-organizational level).

**Figure 12**: Knowledge conversion processes (Nonaka and Takeuchi,

Figure 2 – Knowledge conversion processes (Nonaka, Takeuchi, 1995).

### *2. Meta-consulting knowledge creation pathways*

Th e basic aim the of *meta-consulting*<sup>7</sup> intervention is the induction of new managerial knowledge, which both the client and the consultant can exploit in the future, aft er the consulting project has been completed. I speak of 'induction', rather than 'transfer' of knowledge because the client and the consultant learn by implementing new knowledge creation cooperative processes and by connecting that knowledge to their own starting cognitive structures rather than by only acquiring new knowledge (which is codifi ed to a greater or lesser degree). Th ese processes are subjective by defi nition, and cannot be 'taught'. Th ey can however be stimulated (induced) by the specifi c attitudes and conduct of the parties in the consulting relationship (discussion, explanation, recovery of previous experiences, active participation, etc.).

By making use of the conceptual categories developed by Nonaka and Takeuchi and by externalizing the implicit knowledge acquired through my own consulting experiences8 , I propose in Figures 3 and 4 a possible con-

7 See Chapter V.

8 Cognitive sciences have made great advances in the last decade or so, but even today we still know too little (and there is too little agreement) about how the human mind and brain function to be able to say that we have a complete theory of the mind which gives an exhaustive explanation of 'knowledge'.

Of great interest, therefore is the work done by those who study knowledge from the viewpoint of psychology, of psychotherapeutic clinics, of sociology, and also of

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1995).

ceptual mapping of the essential pathways through which the knowledge generation power of 'high knowledge creation potential' consulting9 can be expressed by following the *meta-consulting* approach10.

Through *socialization* pathways (figure 3), new tacit knowledge is induced by face-to-face interaction and by the subsequent informal sharing (and integration) of the pre-existing tacit knowledge owned by the two parties in the consulting relationship. Through active participation in the consulting experience, the client and the consultant submit their own initial tacit knowledge to a critical 'justification' process based on direct and mutual comparison. This knowledge is 'unfrozen' and, in the event of 'non-confirmation', is renewed and converted into *new implicit knowledge*. Mutual direct observation, comparing different viewpoints, sharing and synchronizing experiences, insights and mental models, make it possible for both the client and the consultant:

a. to renew their own pre-existing *implicit visions of the firm's structure*  (or functional portions of it) and *of the competitive environment*. For example, by sharing and comparing differing mental patterns, the client and the consultant can cooperatively develop new ways of intuitively interpreting (and 'seeing') the essential (qualitative and quantitative) features of the firm's structure, and new ways of interpreting (and 'see-

corporate organization and management; who are well aware how little we comprehend these matters today; and who endeavour to find new research inroads and to construct and test new interpretation models. I am of the opinion that we will not be helped, and may even be misled, by trying to elaborate complete theories on mind functioning that are based on the 'reassuring' approaches of philosophical theories of the mind, or by adopting theories that seem 'complete' merely, or mainly, because they are based on general concepts (such as Kelly's (1955) theory of personal constructs), and can therefore only theoretically be applied to all problematic contexts. A much better approach, I believe, is to accept the incompleteness of our existing knowledge and to work toward integrating this knowledge with that generated through the 'consulting-clinic' experiences. Such knowledge is certainly difficult to generalize as it is necessarily based on individually observed cases; but it can provide heuristically significant indications, can highlight problems, pose questions, falsify existing theoretical models, and, consequently, stimulate the development of new models. In this sense, the consulting-clinic setting may be an excellent laboratory because its particular characteristics allow in-depth study and close observation of cognitive dynamics to a much greater extent than is possible in abstract contexts and/or by observing 'from the outside'.

<sup>9</sup> See Chapter VIII.

<sup>10</sup> To study the wide spectrum of the knowledge creation processes involved in the consulting relationship, we need a clear definition of the 'client' (Lundberg, 2002) and of the 'consultant' as recognizable units of analysis. In this book, I manly take the client to be the firm's top management (or the entrepreneur), and the consultant to be the person in charge of carrying out the consulting intervention. This approach has been adopted also by Czerniawska (2002a) and by Linnarson and Werr (2002).

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ing') the relationship between the firm and its clients, the firm and its competitors, etc.;

b. to renew their own *implicit diagnostic, problem solving, and change implementation skills and capabilities*. By socializing their own pre-existing diagnostic-type implicit abilities, the client and the consultant can, for example, gain new intuitive abilities to sense the cause-effect relationships among the explanatory variables of managerial problems referring to a certain functional area (for example, the marketing area) and to intuitively distinguish, in the full set of involved variables, the 'relatively primary' variables from the 'relatively secondary' ones.

The managerial knowledge creation potential of socialization pathways that can be activated through meta-consulting interventions was very clearly perceived and expressed by one of the partners of a large-sized consultancy firm, which is a global leader in the strategy consulting field, who had the following to say:

Classroom training was banished from our company over 10 years ago. Anyone wishing to work with us had to have learnt the basics of general management at business schools. However, that knowledge is not sufficient. We attribute considerable weight to the mental flexibility of our collaborators, their humility, their determination and ability to learn from experience. Working 'shoulder to shoulder' with more expert colleagues, and above all with clients on concrete consulting projects, makes it possible to learn, fine-tune, improve and develop one's own consulting skills, and it particularly enables development of the most important ability required of management consultants: the capacity to challenge their own mental patterns every time or, to put it another way, it teaches one to learn from experience. Our clients often do not realize it, but the value created by every consulting project gives us at least three times more than we charge them in fees. The entrepreneur knows his business better than anyone else, and his company differs from every other company. Becoming totally immersed in this knowledge and in this diversity enables us to build up unique cognitive value, which none of our competitors will be able to imitate.

By applying their own explicit knowledge (diagnostic, problem solving and change implementation methods and techniques; conceptual models for interpreting the firm's structure and the competitive environment) to the specific context of the consulting intervention, both clients and consultants convert that knowledge into new tacit knowledge (*internalization* pathways) specific to the client's business context (figure 3)11. This is a very

<sup>11</sup> Turning explicit knowledge ('general knowledge') into tacit knowledge ('idiosyncratic experience') is an essential and critical part of the consulting interven-

arduous cognitive path as it requires both parties to shun any temptation to merely replace the client's 'existing practices' with the 'best practices' (mainly explicit knowledge) which form part of the consultant's cognitive background, and instead to engage themselves in an intense activity of contextualization of that knowledge (by adapting it, changing it, redefining it, etc.) to the specific (business, competition, etc.) field with which the consulting intervention has to deal. For example, by experimenting with the application of their own codified techniques for managerial problem diagnosis to the specific client business context, consultants develop *new implicit diagnostic know-how* (uncodified skills and abilities) that is appropriate for defining the specific managerial problem, for discovering its causes, and for identifying the client firm's capabilities that can be used to solve it. The direct experiential sharing of this knowledge conversion process also makes it possible for clients to assimilate this new tacit knowledge, while at the same time subjecting their own pre-existing explicit diagnostic methods to critical justification, unfreezing, and renewal.

Through *externalization* pathways (figure 4), the client and the consultant cooperatively convert their own tacit knowledge (both that pre-existing and the new knowledge generated through the consulting process) by translating perceptions, insights and experiences into explicit forms. Through these pathways, *new conceptual patterns and models* are created which, being explicit, are easily transmissible (to different levels of the organizational structure) through codified languages, and are also reusable in the future should the need arise. As new process (i.e., implicit) knowledge emerges that proves to work better than pre-existing knowledge (new tacit knowledge 'which is shown to be true'), client-consultant social interaction shifts to the plane of a shared reflection, which, through the integrated use of inductive, deductive and abductive reasoning (metaphors and analogies12), aims to translate implicit knowledge into words, phrases and in the ultimate analysis, into explicit (formalized and codified) conceptual models. For example, from the initial phases of the consulting process, both client and consultant share the activity of codifying the client's initial implicit mental schemes for perceiving the qualitative and quantitative features of the firm's structure (*the client's initial implicit vision of the firm's structure*), thus making it possible to subject those schemes to critical justification and unfreezing processes (which will be fully implemented through successive internalization and socialization dynamics). Furthermore, during the whole consulting process, both client and con-

tion, as has been shown by, among others, Sarvary (1999: 101): «There is no KM system that can account for the idiosyncrasies of a particular business situation". Consequently, even if a consulting firm has an efficient Knowledge Management system that can collect, update, synthesize and catalog the best practices, "if it is misused by incompetent people, it can lead to a disaster».

<sup>12</sup> On the role of metaphors in the consultancy process, see, for example, Atkin and Perren (2000).

Figure 4 – Cognitive interpretation of the meta-consulting process. Synthetic mapping of the explicit knowledge creation pathways: externalization (EXT) and combination (COMB). explicit knowledge creation pathways: externalization (EXT) and combination (COMB).

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sultant jointly endeavor to make explicit and codify the new tacit knowledge which emerges in the diagnostic phase (*implicit diagnostic analysis know-how*), in the therapeutic planning phase (*implicit problem-solving know-how*), and in the solution implementation phase (*implicit change implementation know-how*). This enables both parties to codify and learn *new explicit knowledge* (*models, techniques, instruments and methods*), which can be exploited in the future, once the consulting process is concluded.

Finally, through *combination* pathways (figure 4) the client and the consultant *integrate the new explicit knowledge* (which has been generated through the consulting process) *into their own pre-existing explicit conceptual systems*. There is a high level of knowledge creation potential in the combination pathway, even when the consulting intervention deals with partial areas of the client firm's structure (for example, a given business segment, or a given functional area). In these cases, in fact, the combination of new explicit 'medium-range' knowledge with more general pre-existing concepts (for example, the explicit corporate vision) allows the older concepts to be enriched with new meanings. The creative use of ICT networks and hypertext information databases facilitates the combination pathway and helps both the client and the consultant to refreeze the new conceptual models and the new techniques that have been developed.

Our best practices for designing and implementing management control systems have reached levels of excellence, particularly the ones that can be used by companies in the manufacturing and banking industries. I think they are the best in Europe. This has helped us to earn an excellent reputation, but our work remains extremely difficult. In fact, each new commission we receive entails immersing our logical, mathematical and statistical models into a specific corporate context and making them work in the best way possible in relation to each client company's specific [present and future] needs. To do this, we need the active cooperation of the client company's management. It is precisely thanks to this collaboration that we realize that our systems are failing to take account of important business interpretation keys, or that they possess potentialities which we had never previously realized. We offer our system to the client as the best available on the market (and we believe this to be true), but we have learned that in the course of every consulting intervention the main focus of our attention must be on seeking both the shortcomings and the latent potential of our systems and of their component modules [consequently generating new implicit knowledge through INTERNALIZATION]. The result is that almost all our consulting interventions lead us to modify (sometimes also to add) one or more modules [thus EXTERNALIZING the new implicit knowledge acquired during the consulting intervention], and some of the relationships which enable the various modules to function as a system [hence RECOMBINING the new explicit knowledge generated through the consulting process].

Figure 5 provides an overall map of the main cognitive pathways along which the managerial knowledge creation potential of meta-consulting can be brought into play.

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# CHAPTER VII

# KNOWLEDGE MANAGEMENT APPROACHES IN MANAGEMENT CONSULTING FIRMS

In addition to playing a signifi cant role in the dissemination of knowledge management practices to their clients, management consultancies use their own knowledge management models (Feher, 2004)1 . In this connection, two alternative approaches have been proposed in the literature (Kim & Trimi, 2007).

**Figure 16**: Knowledge management approaches in management consulting firms. Figure 1 – Knowledge management approaches in management consulting fi rms.

1 On the evaluation of the diff erent methodologies for the development of knowledge management systems see Dehghani and Ramsin (2015). On the critical success factors of knowledge management projects in the consulting sector see Mas-Machuca and Costa (2012).

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Using the *repository* approach, the produced knowledge is codified and archived at a centralized level so that it is easily accessible for all members of the organization. Knowledge, through a 'people to documents' process, is 'extracted' from the subject who developed it, made independent from that subject, incorporated in knowledge-objects (work schedules, collection of benchmark data, etc.), archived and made available for sharing, so that it can be reapplied when the need arises. This approach allows members of the consulting firm to search and recover pre-existing knowledge with relative ease, without having to establish direct contact with the people who generated and/or acquired it. The repository approach is usually adopted by consultancies whose knowledge management system is supported by an intensive use of technological solutions and which offer their customers solutions that, characterized by a relatively high level of standardization, are easily codifiable, storable and reusable through the utilization of databases, manuals and archives. The consulting firms that follow this approach benefit from 'economies of re-use' of the knowledge that is produced: once a knowledge object (for example a manual) has been developed, it can be used many times at a reduced cost; furthermore, since the knowledge is stored in electronic archives, it can be used simultaneously by several consultants.

The *network* approach, on the other hand, is adopted by companies that offer their customers highly customized and context-dependent services and solutions, such as strategic consulting companies. The high degree of specificity and complexity of the knowledge that is necessary to implement consultancy projects which cover such services and solutions, undermines the need to utilize resources for knowledge storage processes whose codified (and, therefore, to some extent simplified) outputs would be of little use. The developed knowledge thus remains 'decentralized' among the individuals who generated it and when a new consulting assignment is to be faced for which this knowledge proves to be potentially useful, brainstorming sessions and/or individual conversations are activated (Hansen *et al*., 1999) with the direct involvement of these individuals. This approach requires the development of articulated interpersonal networks and a culture of assistance and mutual support among colleagues. Even consulting companies that follow this approach develop and use centralized databases, whose purpose, however, is not to provide knowledge-objects, but rather to allow each member of the organization to quickly and effectively identify 'who did what' and, therefore, 'who holds what knowledge'2 .

Table 1 summarizes the typical profile of consulting firms that adopt the repository approach and of companies that, instead, adopt the network approach.

<sup>2</sup> Powell and Ambrosini (2012) believe in management consulting firms adopting 'multiple' and 'hybrid' approaches to knowledge management.


Table 1 – Typical profiles of consulting firms based on the knowledge management approach*.* Adapted from Hansen *et al*. (1999) and Jordan and Jones (1997).

#### CHAPTER VIII

#### THE FUTURE OF MANAGEMENT CONSULTING

Frequent environmental discontinuity1 , and intense changes in the competitive dynamics and logics of client business areas2 , are transforming the physiology of the management consulting industry. This turmoil is generating uncertainty about the direction of the future structural evolution of the industry, but may also present interesting development opportunities for consulting companies with proactive attitudes toward change.

The consulting business is, despite everything, still growing. The aggregate turnover in this industry reached about \$229 billion in 2017 (with an average annual increase of 3.6% in the 2012-2106 period) and in the next four years it is expected to see an annual growth rate of higher than 4 percent (IBIS World, 2016; Kennedy Information, 2017)3 .

<sup>1</sup> For example: the 'dot.com bubble' which burst in the first months of 2000 (with consequent restructuring and downsizing of numerous sectors of the telecom industry), and the tragic events of September 11th, had considerable impact on levels of activity (and therefore, turnover) and the economic results achieved in several sectors of the consulting industry; then there was the collapse of Enron that not only brought about the disappearance of one of the 'Big Five' (Arthur Anderson), but had also extremely negative effects on many consulting and auditing firms; the recent bursting of the subprime mortgage bubble has had a considerable negative impact over past months on rating and financial consulting firms.

<sup>2</sup> The following represent some of the principal competitive dynamics that characterize the majority of industries in the developed economies: the globalization of markets and companies; the shortening of product life cycles and of 'time to market'; growing competitive pressure in domestic markets and a resulting exponential increase of resources to be invested in activities such as new product development, renovation of old products, exploration and penetration of emerging markets; fierce cost competition by manufacturers located in emerging markets; and the exponential development of Information Technologies. These emerging competitive issues are all having a strong impact on the strategies and the organizational structures of most of the client companies served by the main management consulting firms, whether they are big or small, local or international, generalist or specialized.

<sup>3</sup> One interesting analysis of the management consulting industry was carried out by Toppin and Czerniawska (2005). One explanation for the development of management consulting (based on transaction cost theory) has been given by Canback (1998; 1999).

Meanwhile, the complexity and the articulation of the consulting demand is also growing. The value chain of client firms is being reconfigured. On the one hand, both material activities (e.g., the production and assembly of components) and low-value added immaterial ones (e.g., the management of technological infrastructure, and back office activities) are being increasingly outsourced. On the other hand, knowledge-intensive activities (hard to imitate and reproduce), such as product and process R&D, customer service, the creation, development, and protection of critical strategic and organizational knowledge and competences, are being increasingly internalized.

The client firm's tendency to internalize intellectual activities (intellectual in-sourcing4 ), such as strategic planning, competitive analysis, human resources selection and development, and marketing planning impacts on the consulting industry boundaries; and it also makes the needs of the client evolve. Intellectual in-sourcing enhances the client firm's capability to consciously select, design, and control the value-creation dynamics which can be activated through the consulting relationship5 . This internalization tendency consequently acts as a strong stimulus for management consulting firms to go beyond their traditional intervention models6 .

<sup>4</sup> If knowledge is becoming *the* resource on which the entrepreneurial organizations operating in developed economies base their competitive advantages (and their strategic development processes) it should not come as a surprise that this should be seen as 'the challenge' to be faced in the years to come by management consulting firms, being as they are the 'archetypes of knowledge-intensive firms'.

<sup>5</sup> More and more frequently the top and middle management positions of many medium to large client firms are held by former senior consultants of major consulting firms (and/or by graduates of international business schools that offer the most updated training in 'best management practices'), who are well able to master the consulting techniques and models used by top consultancies. Consequently, the control and development of the 'cutting edge' strategic and organizational analysis techniques and models are no longer the exclusive competence of the leading consulting firms.

<sup>6</sup> Such models see the members of consulting teams as 'experts', possessors of 'superior' knowledge, management tools and implementation skills, whose simple 'transfer' would enable clients to achieve 'certain' results in terms of attaining/ strengthening their competitive advantage. BCG has traditionally founded its competitive strategies on the 'unique' abilities of its consultants in the application of the 'growth share matrix' and the 'experience curve model'. Monitor founds its competitive strategies on its 'higher' interpretive capabilities in the 'value-chain model'; Strategos on its analysis and enhancement skills of the 'core competencies', etc. (Poulfelt, Greiner & Bhambri, 2005). However, with increasing frequency many of the abstract conclusions and recommendations of the consulting firms (not only those made by 'generalist' consulting firms or by firms specialized in the strategy field but, even if on a smaller scale, also those made by firms specialized in sectors traditionally considered to be 'at a high level of standardization', such as credit rating firms and accounting auditing firms) reveal growing implementation issues and/or when tested against the reality of hard facts, lead to results which are very far from what had been promised.

The economy is now in large part globalized, and founded on the widespread use of modern Information and Telecommunications Technologies. Today's 'market-space' competition, at the appropriate time and of the immaterial is turning the competitive logics and dynamics of the firm upside down. Traditional strategic reactions (temporary downsizing, restructuring, outsourcing, consolidations by means of mergers and acquisitions, etc.) may turn out to be inadequate.

Whether or not consulting firms will successfully compete in the market will depend in large part on their capacity to undertake new and diverse strategic pathways, which will change their business boundaries, their organizational profiles, and many features of the consulting practices and the consulting models that have traditionally been the basis of their competitive success.

We already have some examples of proactive strategic behaviors toward environmental change, such as:


<sup>7</sup> On the competition and cooperation dynamics recently characterizing the relationships among management consulting firms see Panda (2017).

a natural target of their international development (typically mediumsized firms with high growth potential and bases in emerging markets)8 ;

• the orientation toward long term consulting relationships that exceed implementation times of a single project. It is estimated that nowadays more than two thirds of the annual turnover of consulting firms in leadership positions in the various sectors of the industry originate from clients they had already acquired in previous years (Poulfelt, Greiner & Bhambri, 2005). One of the advantages of this type of relationship is that there are lower marketing costs and lower investments (also for the client). And it is easier and cheaper to build and maintain the client's trust and the consulting firm's credibility.

Figures 1 and 2 are an attempt to systematize and project present-day dynamics, where demand is increasingly aware of the real economic and cognitive value generation potential that can be activated by the consulting relationship. The figures show two possible scenarios of the evolutionary transformation of management consultant's roles.

In those consulting areas characterized by 'low knowledge creation potential', typically IT consulting and consulting on routine functional area related problems (accounting consulting, auditing consulting, etc.), the pressure from the demand is for standardization and cost reduction in low-value added activities (operations management, IT infrastructure management and low knowledge-intensive immaterial activities). This is generating the need for the client firms to further delegate problem solving and implementation activities to consultants, and to focus company time and attention on aspects of problem finding and problem defining (e.g., which activities should be standardized, and with which cost reduction objectives), and on control of the consulting project (intermediate and final) key results.

Such a scenario leads us to think that a possible evolution of the management consultant's role could be toward:

• the 'online-consultant'. This limits face to face interactions with the client to a bare minimum, incorporates diagnostic and problem solving best practices into modular software, and delivers consulting services through extensive use of the internet and/or of dedicated intranet platforms (Czerniawska, 2005; Seifert, Nissen, 2016). The use of ICT platforms will also satisfy the growing need of clients to be able to obtain quick and simple access to full control of progress made in the implementation of the consulting intervention; and/or

<sup>8</sup> Today the turnover growth rates of many top consultancies are much higher in the emerging markets than in the traditional ones (Europe and USA). For instance, in 2016 Deloitte global network's growth rate in Asia was almost 70% higher than that achieved in the USA.

1

• the 'outsourcing provider', which tends to take on the management of those activities that client firms decide to outsource (a decision that might be based on advice given by consultants themselves).

A different evolutionary path is predictable for the role of management consultants operating in areas characterized by 'high knowledge creation potential' (typically: strategy consulting, organizational consulting, consulting on non-routine functional area related problems). In this respect, the growing propensity of client firms to internalize activities characterized by greater knowledge intensity (intellectual in-sourcing) and, consequently, to more consciously evaluate the real effectiveness of any consultancy intervention is progressively leading these firms to prefer management consulting models characterized by:


Therefore, in consulting areas characterized by 'high knowledge creation potential' the competitive power of the management consulting firm will also depend on its capacity to overcome traditional service logics (geared to the simple transfer to the client of mainly explicit knowledge – 'best practices' –, in order to resolve specific managerial problems), and to evolve its consulting practices toward models9 designed to provide support, collaboration and facilitation for the creation of new, mainly implicit knowledge (managerial skills, change management abilities) that enhances the cognitive resources of the client firm and its capability to successfully face future strategic challenges.

<sup>9</sup> On the consulting models see Chapter V.


Provider".

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